Private Equity Firms: How to Select One

Private Equity Firms: How to Select One

Whether you discover yourself receiving inbound calls from private equity firms, or you’re nearing the top of a competitive sales process and have multiple interested firms, you’re faced with an equivalent question: How do i select the proper private equity partner?

Enough horror stories pervade the entrepreneurship space that each founder is anxious about bringing on a partner—one you’ll be married to for 3-5 years (or even longer) before you’ll exit the connection.

This worry is particularly acute for founders who haven’t taken outside investment and haven’t had an investor on their board. How involved will the investor be within the business? Will you as a founder be ready to maintain control? Will the investor add value to the relationship?

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Having an outdoor investor influencing decision-making are often an enormous change. As a result, you would like to form sure you’re aligned with a personal equity investor before you partner with them.

Ensuring Alignment Between Founder and Partner
No partner is universally good or bad—finding the proper partner has the maximum amount to try to to with you, the founder, because it does the partner.

Behind the investor horror stories (founder being fired, mass layoffs, etc.) are cases of misalignment, where the founder’s goals and management style directly conflict with the investor’s. While no partnership is ideal , doing all of your research beforehand can increase your chances of a successful partnership.

To improve your outcome, below are some criteria to use to guage potential private equity investors and consider how they might mesh together with your management style:

Name-brand vs. under-the-radar firms
Hands-on vs. passive firms
Firms with a playbook vs. bespoke strategies
Firms focused on growth through M&A vs. organic growth
Firm fit vs. partner fit
Name-brand vs. under-the-radar firms
Name-brand firms are the household names within the investment community. Their funds are large, they need wide portfolios, and that they have an enormous resource pool to draw from. These are the firms who reach bent you which you hear about in the least the tradeshows.

Under-the-radar firms, on the opposite hand, have a more limited resource pool and typically target a selected investment niche with their portfolio. Often they need to believe investment bankers to fill their deal flow.

When evaluating whether to settle on a name-brand firm vs. a more niche firm, consider that name-brand firms tend to possess the subsequent characteristics:


More helpful with opening doors due to their wide network
More beneficial for growing business operations thanks to larger funds and more resources
Easier to seek out and obtain ahead of since they need more marketing resources available

Stricter in enforcing a playbook for all their portfolio companies
More disciplined when valuing your business since they need more deals on the table, creating competition for investment dollars (i.e. internal valuation ceiling)
Tougher to barter with since they don’t want to line negative precedents for future transactions
More insistent on their deal terms
More likely to lose interest and write-off an investment if it doesn’t go as planned (due to an outsized portfolio)

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