Do you have What it Takes to be in the VC/ Private Equity Business
I have been in the money and private equity business for
around 30 years now ; both as an investment banker, company
operator/ CEO and venture capitalist and private equity
I have seen and met the whole spectrum of people… From the
super smart type to the dumb as a rock persona and all in
People constantlyask me what is it like to have experienced all
sides of the fence and be at the heart of the private equity
business,shaping its very core from the family office side… So
I thought sharing with you those personal thoughts
1. First off… You have an unending amount of email, phone
calls, and requests for your time which is very hard to manage
without coming off like a total asshole. It’s very difficult to find
rational entrepreneurs who can execute, and the number of
crazy and dumb ideas that you get pitched about is surreal.
You also have all the normal challenges as a senior partner of
running a business, hiring people, and dealing with problems
that arise in an industry with very few rules and established
best practices (there are plenty of established worst practices
2. You have to be able to convince a lot of professional
investors to give you tens of millions; hundreds of millions or
even billions of dollars.
By definition, to do this, you must have prior successeither as
a private equity investor with a track record of performance or
in operations in the industries in which you want to invest. I’ve
read that for early stage funds, successfulentrepreneurs tend
to be the better bet (irrespective of academic pedigree).
Forlater stage funds, investment analysts, folks with
Harvard/Stanford/Wharton MBAs tend to do better.
3. You have to identify deals for due diligence. Literally
thousandsof deals get thrown at you a year. You invest in
maybe 5-10 . You have to separate the pointless from the
potentially valuable very quickly because you cannot possibly
devote much time to investigating fully thousands of deals.
Of course the entrepreneurial communitycomplains you don’t
get their deals, you haven’t devoted enough time to
understand their deals. You aren’t responsive enough, etc…,
4. You perform due diligence on potentially investable deals.
Let’s say to get 10 deals, you spend a significant amount of
time on 25. You have to verify the product claims, technology
claims, market claims, team claims, etc… and just generally get
to know the deal.
5. You have to convince your partners that the deal is sound
with big potential. You need to show them your due diligence
and convince the partners why the Firm should invest in your
deal, remembering that there are limited funds and those
same partners want funds available to invest in their deals.
6. You have to determine the terms of the deal . . . prepare the
term sheet. In doing this, you need to be cognizant of the fact
that the entrepreneur will likely see the opportunity as worth
more than you.
The best deals get multiple offers so that you may be
competingagainst a private equity group who can offer more
substantivehelp to the company than you and may be able to
put a lower valuation on the deal because that group has a
higher value add or a VC/private equity investor with less
experience who may be over valuing the deal.
7. You have to negotiate and manage the deal taking all of the
foregoing into account. In fact, you need to serve on the Board
of Directors of the investee Company.
To do this successfully, you’ll need to be an active participant,
not just a casual outside observer who shows up at meetings.
This involves mentoring a young entrepreneur and facilitating
successof the company by, for example, assisting it in finding
employees, strategic partners, customersand the like.
8. You have to also manage the inevitable conflicts between
investor and entrepreneur. Keep in mind that entrepreneurs
routinely and loudly criticize VCs and private equity investors
alike for their alleged failures here.
· What happens when they fail to make plan, as most, I would
say almost all do at some point in their development?
· Is it time for a shift direction or do you continue on the same
· What will be the impact on the company of terminating the
10. You have to determine if a company is worth further
investment.Most companies fail to adequately predict how
much capital they will need to get to a certain point. The
question is, does this failure mean that you are throwing good
money after bad or does it mean that you need to cut your
losses, stop supporting the company, and declare the investment
11. On the flip side, if the company is succeeding, you have to
determine when is the right time for exit. Anecdotally, I think VCs
tend to want to throw more money at their companies that are
succeedingto build the valuation in the hopes of a home run
rather than take a single or a double.
With that said, a few things I’ve noticed about the VC/private
equity lifestyle that I’ve heard is mostly true for others as well,
regardless of status or firm:
· Solitary: Unlike a startup, where you’re interacting with a team
on a daily basis, you’re more on your own as a VC. You meet
with companies, you run numbers, and you typically see your
fellow partners at the weekly meeting or at social events. You
don’t work with them dawn to dusk like you would your
teammatesat for example Google.
· Travel: There is a ton of travel in the private equity world.
Higher-level VCs and firms with more autonomy have more
controlover their schedules, but you have board meetings and
· Politics: You either have to deal with the internal politics of your
firm, the outside politics of other investors, or most likely both.
You can’t avoid it sometimes-even if you are the founding
partner of a big firm or private family office.
· Egos: Some VCs/private equity masters of the universe types
have egos that can’t seem to deflate. The best ones realize that
the entrepreneurs are the stars, and that they are merely
coacheson the sidelines….
· Coaching: A lot of a VCs /private equity investors time is spent
coaching his or her companies. Bad ones get over involved in the
affairs of their portfolio companies. Great ones provide
mentorship and advice when asked and help guide their
entrepreneurswith insight and wisdom.
There’s a lot more to be said about being a founding partner at
a VC/private equity firm, but to summarize: every partner is
different, every firm is different -especially when it comes to
family offices – and VC isn’t for everybody.
Share your thoughts.
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