Managing Partner, Montage Partners.
Think a private equity firm is only good for writing a big check? As a managing partner at one, this is something I’ve often heard during my career. Whether influenced by media perception or poor advice, many business owners I speak with aren’t aware of the benefits of partnering with a private equity firm beyond capital infusions.
While an influx of capital is an important part of what private equity firms bring to the table, it’s far from the only resource they can offer, especially for companies situated in the middle and lower-middle markets. Below, I want to share five ways companies can take advantage of private equity firms beyond providing capital.
1. Leverage their expertise to broaden your perspective.
Partnering with a private equity firm can open up a new, expanded world of strategies, ideas and perspectives. Especially when a firm has been operating for decades, they have seen the good and the bad across multiple industries and economic cycles. Chances are that your private equity firm has seen or been involved in a situation similar to what you may be facing as a business owner and can offer their experience to supplement decision making. This makes for an excellent sounding board to brainstorm and bounce ideas off of.
Private equity firms are also in the unique position of having a pulse on industry trends across multiple sectors, for they evaluate hundreds or even thousands of companies per year. This means that by creating the right relationship, you can leverage them to act as the eyes and ears for your business on a much larger scale than you would typically have on your own.
Ask if your private equity firm can help with direct support in areas such as sales, marketing, business development, accounting or operations, to name a few. For small-to-medium enterprises, some of these functions may be insignificant or non-existent within your company. For example, depending on the industry, many successful companies of this size have grown organically without ever having dedicated marketing resources or a marketing plan. You can utilize private equity firms to help build the infrastructure needed to scale a company quicker and unlock new levels of growth.
2. Ask for introductions to tap into larger networks.
You can also take advantage of your private equity firm’s support in the form of introductions to experts in fields like supply chain, human resources or technology. Because private equity firms typically develop a large network of consultants and advisors, both that they use internally and externally with their portfolio companies, partnering with the right one can give you access to a larger pool of vetted options to potentially collaborate with.
Note that a private equity firm’s network typically goes beyond consultants and advisors. Of particular interest to many business owners is access to a peer group of other founders and CEOs. It can sometimes be lonely at the top, especially when navigating tough challenges like inflation, a recession and a tight labor market. As part of a private equity portfolio, you can more easily access other CEOs across multiple industries in a confidential, non-competitive setting to share best practices and hear what has (and what has not) worked for others.
3. Use them as a resource to reframe your growth versus risk mindset.
For many business owners, a substantial portion of their net worth is tied up in their business. This means that major growth initiatives—whether it’s building out a new division or large capital expenditures—are funded personally. Many business owners can be understandably hesitant to fund significant outlays of capital that potentially won’t produce a return for months or years.
When business owners partner with private equity, though, they may find that their mindset around growth and the associated risk profile changes. Because founders no longer have to put only their capital on the line to fund these initiatives, I find that their growth plans are often much more accelerated.
4. Ask how they can assist you in growing your business.
While most business owners are aware that significant growth can be unlocked by acquiring competitors or tangential companies, the majority are often too busy or too focused on day-to-day operations to be able to facilitate a transaction process (let alone multiple). Ask your private equity firm for ways that they can take the lion’s share of this burden, from assisting in sourcing prospective add-ons to leading legal negotiations and documentation.
5. Use your relationship with a private equity firm to help legitimize your enterprise.
Not only can a private equity firm help lead recruitment processes for executive positions (including introductions to their proven recruiters), but business owners may also find that being backed by a private equity firm allows them to recruit higher-quality talent.
I see how many smaller companies struggle to attract top-tier talent to build out a high-caliber leadership team. However, I find that when a company is backed by institutional capital from a private equity firm, it can appear more institutional—with a defined strategy and growth plan, an established reporting infrastructure, a board to provide credibility and accountability and a true team-based atmosphere rather than a sole proprietorship. For many high-quality leaders, this is much more attractive than relying on one individual owner. Make sure you advertise this relationship to help add legitimacy to your enterprise.
It’s important to note that these benefits only ring true when the right private equity partner is found. Before entering into a relationship with a private equity firm, ask about what else they can offer outside of capital. Ask for specific examples and ask to speak with past or current management teams to validate these answers and hear more about what they are like as partners. A proper fit is just as important as the PE firm’s offerings.
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