Escape Club / Exit Hatch

I agree with kinghongkong. Your best returns will likely come from something you're the (co)founder of. Regardless of what the idea is, you'll earn more by holding the lion's share of the cap table than by being the check into someone else's real estate, tech startup, small business, microcap buyout, etc. deal.

I'm not eager to share all the niches I discovered to make money, but I'll walk you through an easy example. Your profile says you're a Director in PE. From that I infer that you're clearing at least half a buck in annual comp, you have a robust network of sourcing relationships / service providers / pockets of institutional and individual capital, and you've developed a level of technical and operational expertise valuable to the success of a privately-held business.

What's stopping you from doing a buyout strictly with personal capital? Let's say you have $2.5m in deployable capital. You find a small business in an industry a lender will give you 5x in. You have the firepower to take down a $15m acquisition entirely on your own.

You know the rest, I don't have to walk through what it looks like if you can drive top-line growth by 50% (often easy with businesses this small and lacking professional management) and boost bottom-line profitability by 10% with common-sense fixes. And the exit? The easiest part. Flip it to your fund (they'll love you; seriously, think how much bitching you all do about how hard it is to find a quality deal that's non-banked these days). If not, to a friend's.

Okay, you're time-constrained, you have a full-time job as a Director at a fund with $X,XXXm. You can source but you don't have the time to run through diligence on a potential private deal like this.

a) I'd say bullshit, deals like this are a joke because as long as it's a space you know, the lack of complexity due to the size of the business makes this something you can get done on your own in a matter of weeks.

b) Want to know how easy it is to get a really smart senior (or hell, MBA) from a great school to get cranking on this for you for $20 an hour? Take it even further and go get a banking analyst whose had their soul inexorably crushed by the banalities of the analyst gig; dangle the carrot before them and tell them they can be CFO, COO, or CEO upon closing.

Find a great target that requires an equity check a touch bigger than you can comfortably write on your own? Ask one of the guys you work with. Ask that mentor of yours who's ten years further along the track than you. Ask your pledge brother or college buddy who interned at a different bank, went back, prepped for PE recruiting with you, and is now at a different shop. Any of a million paths.

Or maybe you want to go down a different route and build rather than buy. That's great too. In startup land there are some wild multiples for SaaS businesses right now. I saw a company with $83k ARR get acquired for ~$70m. That's obviously a very massive outlier (as the strategic acquirer was really desperate to plug a product gap that a lot of people became aware of at the same time, and while ARR was low, the startup had 11 non-affiliated clients). I saw another with ~$700k ARR go for $55m, and one with ~$1.6 ARR go for $115.

To win in SaaS you need a compelling idea, decent product (honestly, you're going to be spending so much time listening to clients in the earliest stages that the product will never be perfect; it's all about accumulative advantage [being 1% better gets you the deal, you don't have to be 100% better than the competition - plus, if the alternative is nothing, boom, you're winning]), a great sales org, and a superb customer success org.

When I say win I'm talking about getting revenue. To exit or secure a real Series A from a legitimate venture fund (and there's less than 30 in the U.S. that matter), you need a) $100k in MRR, b) 5-7 non-affiliated clients (i.e. none of that YC nonsense where you have 19 clients but they're all batchmates doing you a favor because you're doing the same for them / selling to your friends or prior employer(s) at deeply discounted "beta" pricing), c) a solid CTO who's got a proven ability to recruit technical talent.

Okay, "how do I get an idea then?" Really simple. Go talk to people about pain points they have. The same way you'd do sector diligence while evaluating an investment in your day job, take a rigorous approach to outlining a segment of people with the same core commonalities and go talk to them. Scott Belsky (founded Behance, currently bouncing between a Venture Partner role at Benchmark and an idea he's incubating that they'll fund) just said something today that's more succinct than I can be on the same topic. "Get customers to talk about their problems, not your product. Nothing improves a product more than empathy."

I'm waxing long here but my point is that you never win clipping a portion of the returns. You win by being the brave adventurer who faces risk and demonstrates ingenuity, tenacity, and creativity to unlock the prize. Right now you're being brought in on deals. Flip the script. Make yourself the principal; bring someone else in if you have to.

Good luck. This is the shit I live for.