Private equity wouldn't exist in its current form without talented people. Whether that is the investor who sourced the deal, the interim CEO leading change, or the portfolio company's hourly worker who is incentivized by the new leadership team, the playbook remains the same: good deal terms + quality people + time to realize the changes. So, what is the difference between firms that consistently get it right, and the firm that had one 10x MOIC deal and still couldn't fundraise again? People.
Firms that are repeatedly generating 30%+ IRR for every fund have operating partners specializing in the industry, job function, and work product, and can step in and execute time after time. What does this show? To generate outsized returns, one must have a playbook with the right people to execute it.
Whether it be a partner with experience as a turnaround CEO, an ex-founder who understands how to implement change at the granular company level, or even someone with an extensive network in the industry to build a new team, private equity firms need to have these individuals on staff. While each deal is unique and requires different operational support levels, the common denominator is always people. At the end of the day, it is the quality of the team that will make or break a portfolio company’s success. We now know how integral these individuals are, which begs the question, where do you find them?
The traditional way of identifying true operational talent (if you’re not a mega fund with a deep internal network) is by utilizing one of three routes:
Using a standard headhunter will be not only the most expensive, but the most thorough option, as well the best use of your teams time (since you’re essentially paying to outsource the search until the last mile). Headhunters will create a list of strong candidates based on your exact qualifications, vet their ability to execute, test their skill set, and make certain they are a good fit for your portfolio company. But, searches can sometimes last up to six months, and you can expect a bill that can range up to six figures for one hire. Doesn’t sound ideal if you’re a brand new fund with 10 more portfolio companies to hire for and you’re trying to keep initial capital expenditures on the low side, even if the value is understood in terms of return potential.
We like to call this the ‘middle option’ - not very pricey and will take time but not too much time. Some of the best transactions have led by a CEO referred by the Private Equity MD’s buddy from business school and went on to achieve a 5x MOIC within 2-3 years - completely possible, but not so replicable.
Well, what happens relying solely on your network? Unless your team is the most popular team in town, you very rarely will have lists of candidates for all types of positions, and will likely end up settling for a ‘good enough’ operator who is talented, but not a perfect fit. Building up a sufficient network to use it regularly for operating executives will take ruthless networking, and as a scrappier LMM fund, there is rarely enough bandwidth to even begin to tackle this.
Job boards, the go-to methodology of the older generation (because they aren’t the ones sifting through the hundreds of irrelevant, unqualified candidates that come in). If there is a team member with the capacity to handle the hiring process, this is the single most cost-effective (at the opportunity cost of their time) method of finding your portfolio company’s next C-suite executive.
Yet, If you’re like us (you wouldn’t be reading this if you weren’t), this can feel like a never ending journey through hell reading resume after resume, filling three weeks of interviews, just for the first round.
So, what do you do if you have 8 portfolio companies you need to hire 2-3 positions each for? Fork over $1m in headhunting fees? Hire two full-time employees to network and skim through stacks of resumes?
Introducing, Flywheel - a two sided marketplace that connects functional experts of all capacities, with experience executing on growth-centric private equity playbooks with the best private and growth equity firms in the lower and middle market. Since every single user individually vetted on our 26-point diligence process, we ensure every person is truly an expert in their own capacity, enabling every conversation to be a productive, fruitful, and comfortable relationship to be built. There are hundreds of real experts in their respective field waiting to hired on to an engagement by a team of talented investors, all found within the platform in every vertical.
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