Start-ups and Private Equity shops

You’re the CEO of a start-up. You launched your great new revolutionary disruptive idea with friends and family capital. Now you need some sizeable capital to go into production. Understand the following:

• It is easier to raise larger rather than smaller sums of capital. At $10 million and up there are more players. The amount of work that goes into an investment is the same regardless of size.
• You the CEO have to be confident if you are going to ask for their investment. The private equity world is highly competitive and always looking for the ‘good’ deal. Good deals have successful experienced CEOs. If you fit that profile, you’ll be negotiating from strength.
• Keep in mind, to the PE firm you are a race horse. You’ll either win races and be sold off for the breeding rights, or you’ll end up at the falafel stand on Broadway. By the way, no hard feelings, old boy.
• To the PE firm, the only thing that matters is your financial performance.They will stuff your board room with shiny face eager beaver junior associates from the so-called elite colleges who will dig like termites into the financial structure of your company.
• You the CEO have to be tolerant of the arrogance of PE firms. They have to act superior, having convinced a pension plan that they can generate a superior return than the S&P 500, not easy to do.
• Remember it’s never personal. They don’t care about you. They are investing in you so they can sell you. You are not their friend. They live in a world where friends are a luxury, a calculation that can’t be calculated on an Excel spreadsheet.
• You’ll find other than investing money in your dream, PE firms have limited operating knowledge. They have never had to hire, fire or motivate anyone. They come out of MBA factories hoping to their class ranking lands then a position in a PE firm. Selected they work unheard of long hours, forgoing any social life, to claw their way up the ranks.
• This lack of management experience is most evident in the sales process. PE executives don’t go to elite colleges and compete with Asian tigers on spreadsheets and balance sheet analysis and take a dale Carnegie course as an elective. This means you’ll receive no help in sales growth. In fact just the opposite, you’ll be questioned why aren’t your sales growing faster?