Private equity (PE) investors have come a long way since they first appeared shortly after World War II.
Their initial edge was their ability to do financial engineering where debt was used to make every dollar invested (note, invested dollars are called equity) generate a return multiple times what was originally invested (a.k.a.: multiple of invested capital or MoIC).
Think of leverage as a force multiplier; i.e., when one thing behaves as if it were many things…whether the thing is a dollar, a physical force, or a human resource.
Second Wave of Private Equity Innovation
The second wave of private equity innovation came from studying best practices across ventures to set benchmarks for success based on the best performers in a given domain.
A benchmark is the standard against which performance is measured. Once the benchmarks that correlate with success are known, the mandate is to configure operations to conform to best practices. Private equity firms got good at finding what performance needed to be and then driving management teams to conform to success norms.
What’s Next?
Now that financial engineering and performance benchmarks are standard practice, the question is: “What’s next?”. In his article, Three Phases of Private Equity, Kerry Moynahan tells us it is now all about people. We at IntellIVen could not agree more. Today’s private equity investors can no longer rely on just financial engineering, access to debt capital, and getting the operating metrics right to win big.
The battleground is now defined by portfolio company management team operating maturity. Having an aligned, diverse, high-performance management team lowers risk and shortens the time it takes to achieve the private equity firm’s investment thesis. Less risk and quicker results mean better performance and faster growth which means greater value.
“Both venture and buyout funds have increasingly backed executive leadership that has had prior success and will continue to do so. The proverbial ‘Holy Grail’ for investment funds is to find management teams that are proven and have as close to a proprietary idea as possible.”
Kerry D. Moynihan – Partner, Boyden – PE & VC
Contact Kerry at: kmoynihan@boyden.com
The best private equity firms assess their portfolio company management teams and proactively help them upgrade by:
- Adding strong players they know and trust from having worked with them successfully before.
- Finding and recruiting strong players via their network or retained search (such as Kerry and his firm, Boyden).
- Developing in-place teams.
The punchline is that demand for talent is so great that it far outstrips the supply of quality talent. No amount of networking and recruiting is enough to satisfy the burgeoning need for leaders who know how to manage to lead an operating team. The solution is to increase the supply of quality talent by leveraging experience, instead of dollars, to change the game.
Most private equity firms have senior operating executives on staff who are assigned to share their experience to ensure a subset of management teams are on track to achieve their investment thesis. So doing helps to some extent, but the operating executive’s personal capacity constrains the extent of their impact.
A Proven Path to Maximum Value in Minimal Time
IntelliVen has developed a proven way to package what successful operating executives have learned into a form that helps those with lesser skill and experience perform at higher levels faster. In the very same way that private equity firms initially leveraged investment dollars, IntelliVen leverages intelligence, knowledge, experience, and wisdom.
We are independent successful operating executives who systematically package what we have learned running portfolio companies into a system that dramatically, and quickly, up-levels management team performance, growth, results, and value.
While your management teams have survived the first wave, disruption can rear again in a flash. If things head south again, or if one of your teams could use some help pulling together their reset plan, guide them to get in touch remembering that, quite likely, only you can get your CEO to phone-a-friend for the help they need.
If you are a proven executive who seeks a platform on which to work with top-notch, low-ego, high-performance operators get in touch at intelliven@intelliven.com to compare notes and explore the opportunities.
Contact us at intelliven@intelliven.com to learn how we can help dramatically improve the odds of your success.