Q&A: Private Equity Portfolio Company CFO

There are a few reasons why I like the PE structure. 1. I have a lot of PE experience, so I understand the objectives. I've sold companies to PE funds, worked at a PE fund, and am on my second portfolio company. I've been a board observer and now an executive that answers to the PE fund. I know that PE needs to eventually sell and am comfortable with that. 2. My comp is aligned to the PE's interests in the form of vested equity. So if the PE fund does well I do well, and vice versa. This gets us all working in the same direction. 3. I don't want to work for a non-PE owned company, especially one that is private. I don't want to work for a lifestyle business where an owner makes all the decisions. While I have a boss (CEO), I feel like I answer more to the PE fund. 4. I am excited to eventually sell this company and then see what the next opportunity is (even if it is with the same company).

My first role out of undergrad was on the index fund asset management team for a major asset manager/investment bank that is no longer in business. My team managed $60 billion. I was hired in 2004 to the analyst class. The firm would hire 400 new analysts a year between asset management, wealth management, sales & trading, and IB. I went through 6 weeks of training, which was like business school with real college professors. The firm hired smart people, not just finance majors, and then taught them finance.

My day-to-day responsibilities was a little of everything: I answered RFPs, I put pitch books together, I put portfolio reviews together, I calculated daily fund performance, and I helped the traders with ad hoc analysis and special projects. Although I didn't trade, I sat on a trading desk. My base was $60K with a 20% bonus. This was 2004, remember.

So generally speaking, I found index funds to be really boring. I was more interested in companies themselves: how they competed, how they made money, how they grew. My college experience was all asset management. People were telling me to look at PE. I learned that to get to PE I needed to do IB first. So I set out interviewing for every IB I could. I knew that I likely wasn't going to get into bulge bracket, so I focused on the middle market in the Midwest where I had personal connections.

I was not prepared for IB interviews. I didn't know about the vault guide. I didn't have mentors in IB. I couldn't even answer what three ways you value a company. But I was honest and told them exactly why I was interviewing and what I believed I could do with the right training. I think that part of interviewing is being in the right place at the right time. I found a firm that believed in my story and hired me.

You are right, there was not much cross-over from public to private. I was basically starting over after 2 years. But the way I look at is that whatever job you are in doesn't have to be for the rest of your life.

The hurdle rates are going to be different depending on the equity structure. For example, the PE fund will likely require a certain return, say 2x, before management is in the money. At my last company (FinTech), the PE fund has a preferred return that was dominating the equity value. I really didn't see my shares being worth very much, so when the MarTech company offered me my current role, my equity wasn't holding me back. I was 75% vested and per my agreement I still own what was vested. I just don't see a big payday from that company.

If the company becomes a dog then you'll want to leave. That is certainly a risk in this career path. But I'm part of the executive team so it is up to me and my colleagues to not make it become a dog.

I haven't sacrificed salary as far as I can tell. When I look at CFO compensation market data for my size company in the Midwest, I am right on market with salary and bonus. I have a 40%-50% bonus target, which is 80% dependent on hitting our EBITDA target and 20% dependent on some personal goals. My equity is not an option. I don't have to purchase it. It is given to me and vests over 4 years. If we sell before 4 years then the vesting accelerates. So I am happy with my salary and bonus structure in the short-term.

Good question. From what I can see with PE is I think you'll likely make more money as a successful PE partner. I think you'll have to work a lot more and travel a lot more. I also think you'll develop less transferable skills should you want to leave PE. So you have more risk should your fund not work out. I've seen some long-time PE partners fired for a few bad deals and they don't go work for a company. They typically become a fundless sponsor.

PE is very valuable. What they provide companies like mine is very important. First and foremost, they provide access to capital that we would never be able to access on our own, both debt and equity. This provides us options and growth opportunities that we would never get on our own. They also bring relationships. They have access to executives, consultants, talent, and referrals that we don't have access to. They also hold us accountable to the results.

The downside is that they don't really know how the company is run. That is not their job. So they very much focus on the numbers. They can lose sight of what we are building and why, especially if results are taking longer than expected. They can't really help us operationally. Their data requests can be distracting to running the business especially when they want multiple scenarios or comparisons to how the company used to be.

Fortunately for me, my PE fund is very balanced. When they want something out of the norm, they offer their associate to help put the analysis together. As a smaller company, I don't have the luxury of having a financial analyst with prior IB or PE experience on staff. Hopefully some day!

Regarding my personal life, I feel like I am doing something rewarding and I have control over my schedule. I work a lot, but on my terms. So if I want to take PTO (I just went to Europe for two weeks), if I want to leave early, if I want to work late or on the weekend, I make that call. I know what needs to be done and I have the freedom to get it done. I pass that down to my team, as well. I don't get unexpected surprises (like a new deal) where I need to drop everything and hop on a plane some where. My life isn't disrupted in that way. So I am able to have interests outside of work. When I was in PE, I would be normal for a month and then a deal would hit and everything in my life would be disrupted. I didn't like that. I actually thought IB was better from a life standpoint because it was just consistently busy.

There are a few things you should consider doing to exit in the best way possible:

1. Resign face-to-face to your manager. Not over e-mail, text, or IM. Be thankful for the opportunities that you had.
2. For whatever reason, the accepted standard is 2 weeks notice. Give at least 2 weeks notice (keep in mind you could be asked to leave earlier). When I can, I've given more than 2 weeks.
3. Work hard until the end. Whenever your last day is, put in full effort until that day.
4. Establish and execute a transition plan. If you have day-to-day work or are working on a deal, list out what your responsibilities are and offer suggestions on who should take over. Be ready with this when you resign.
5. Don't bad mouth the company. If you are leaving because you hate the place, don't say it. Just tell them you are going to a new opportunity and you are really excited. If you have an exit interview, keep it constructive.
6. Don't try to take people with you. Minimize your disruption.
7. Send a high level goodbye with your personal contact e-mail. The people you want to stay in touch with you will. If your next job is in the same area, you can meet for lunch or breakfast periodically.

If your managers and coworkers are sad you are leaving but happy for you in your new opportunity, you've exited gracefully.

I don't think the CFA charter has helped me in management. The CFA charter has nothing to do with management. I think having an MBA from a Top 20 school definitely helped me get hired and was viewed favorably by the companies that hired me. I believe I am more well rounded because of my MBA.

Regarding an MBA, there are couple of ways to do it. If you want to go full-time, I think you should have 3-5 years of work experience first. Full-time MBA is a great way to make a career switch. If you are happy with where you work and what you do, you should consider part-time (maybe even company sponsored) as a way to accelerate your career within the company or industry you are in.

Implementing new systems and software does seem daunting, but don't let the fear of the unknown stop you. It will be a great learning experience to go through it the first time. Also, you're typically never in it alone. Likely you would have a team around you that would help you. You also will probably have a consultant or implementation specialist from the software company. You'll want to build a project timeline and manage the project, knowing that it will take time. Then after it is implemented, you'll continue to make changes as you use it. We still make updates and changes to our accounting software, two years later.

I apologize, I thought I answered this but it doesn't appear to have saved.

Doing something differently - I believe all my experiences got me to where I am now, which is where I want to be now. I think maybe it took me longer or was more winding. If anything, I could have probably skipped the asset management. If I had gone straight to IB that might have been better. It did get me a big name on my resume and I lived in NYC for two years, but what I did there has no relevance to what I do now. If I could have done better on my GMAT, that would have been good. I scored less than 700 which limited my options. I think that impacted my ability to find the job out of business school that I really wanted.

Advice for starting out in the finance world - I have two pieces of advice: 1. Put your career in 2-3 year windows. At the beginning of each window, set 3-4 goals for yourself. At the end of each window, evaluate how you did. Some goals you'll have exceeded and some you'll have fallen short. Then set 3-4 goals for the next 2-3 year window. I've not worked anywhere more than 3.5 years. This isn't bragging or complaining, it is just a fact about me. I used those 2-3 year windows to get the most out of what I was doing. I wasn't always in the role that I thought was ideal for me, but I made the most of the situation. Anyone resourceful, hungry, and smart enough can do the same. 2. Own your own development. No one cares more about #1 than #1 (that's you!). If there is something you want to work on, a role you want, something you want to learn, then go for it. Have frequent career discussions with your manager. If you don't speak up, no one will know what you want and you'll be less likely to get help from mentors, managers, peers, friends, family, etc.

One skill - Art of Negotiation. I have to negotiate all the time - for myself, with stakeholders, with vendors. I don't think I'm a good negotiator. I think I jump to what I want too quickly. No patience for the dance. I'm getting better but I have a long way to go.

My leadership style is more hands off. I believe in setting expectations and then letting the person run with the responsibility. I like to do weekly check-ins with my direct reports to just go over priorities. I have an open door policy. My expectation is that issues are brought to me to resolve, not me having to find them. I also offer flexibility. I don't care if someone wants to start their day later or has to leave early for something as long as they are performing. I believe in transparency. It all seems to be working, but I'm only a few years into being a manager so I have a lot to learn.

My best managers have been the ones that haven't micro-managed me. They have given me responsibility or assignment and then let me figure it out. They've allowed me to take new responsibility because I asked for it. They've also been available to help me with problems or issues. Importantly, they've allowed me to tag along for important meetings, calls, or working sessions so that I can learn from them. They've also had open door policies with me. They've been interested in my career and where I want to go.

I consider myself very fortunate that I've never worked with jerks for bosses. I guess finding that out is part of my evaluation process when considering somewhere to work.

I think leadership potential is demonstrated, and it can be demonstrated at all levels. It is taking initiative, identifying issues and proposing solutions, being my eyes and ears, helping peers, etc. My controller is younger, less than 30 years old, and he was super hungry to manage people. So when I promoted him to controller I gave him 4 direct reports. We talked a lot about how to manage and I am letting him run with it. He meets with each direct report weekly and he comes to me with issues he needs help with. He demonstrated his leadership ability prior to the promotion by working closely with the team he now manages to help them better their processes.

As of now I don't have interest in being a CEO. I know that CFOs can and do become CEOs, but I think for me it isn't really a personality fit. I don't feel very visionary or inspirational. I'm more cut & dry and analytical. My CEO is very visionary, inspirational, and overly positive. I'm the opposite, lol. I think we have a good balance. I comfortably tell people I make a great #2.

I do think about a post-CFO career path, something in operations. I do have a good sense of operations and could see myself as a COO. We aren't big enough to need a COO, but maybe the next company would need one. I have talked with my CEO about taking on an operational role, even if it is temporary or a project, and he is open to that.

I am also open to acquiring my own company with the right CEO. I believe I can raise the capital. I just want to get a little more experience first.

I've seen my peers in operations all migrate towards a commercial/brand role over time. I feel like if you've mastered finance you should go try operations as I believe you can come back to finance. Also, I've seen really successful operations people who had finance backgrounds. Understanding finance in an operations role is killer.

I'm not a big believer in "strategy" roles, and you're right that smaller companies don't typically have them. I don't mean to insult anyone here, but they feel a little fluffy. One of my good friends was in strategy at a F500 CPG and he spent two years putting 100 page decks together for his VP's crazy ideas. They rarely went anywhere. Now he's moved to a commercial team focused on healthcare products.

Likes: - Being at the top of the company allows me to have almost total information - I control my own schedule and can travel as much or as little as I want (we have 5 offices) - Being part of a competent team that makes decision; influencing everything we do - Having a talented team report to me - Paid well for what I do - Working with the PE fund in the PE model where our interests are aligned - Challenging work environment because there is always something to build, grow, improve, or enhance

Dislikes: - Finance is repetitive at times: monthly close, reporting cycle, board meetings, audit, etc. - We have significant bank debt from the LBO that we have to service which limits what we can do - Forecasting revenue accurately in this business is basically impossible; too complicated - We are still transitioning from a lifestyle, founder-run business to a PE model; can be painful at times - Ad hoc requests from the bank or PE fund can be distracting

I didn't jump from FP&A to CFO. I grew into it over 4 years. FP&A helped me understand the budgeting and forecasting cycle. Then I went to a middle market company as a Director of Finance and just worked it from there. I had to learn everything on the job through figuring it out myself, calling on mentors and industry contacts for advice, and relying on my coworkers to work with me on new areas. Through my diverse background I had picked up pieces here and there that augmented what I was learning on the job.

I don't think you'll ever be fully prepared. I'm learning new stuff everyday and facing issues I've never seen before. I just follow an internal process of gathering information and then tackling. I make mistakes and learn from them.

Thanks for the questions.

1. In my opinion, finding a job is about hustle. You have to meet with and network with potential employers and understand what their needs are and position yourself as the person that can help fill those needs. When I found my job in IB, I called on all the IB firms in my midwest city. They are all boutique and there aren't many of them. So that might be an option for you. If you can't break into IB directly, I would consider transaction advisory or valuation. I don't know if it has to be Big 4. There are some really good firms that are more specialized. During that time keep calling on the IB until you are able to get some interviews. Just remember, not everyone in IB interned in IB. I never interned in IB. There are other ways to get in.

2. I rely heavily on LinkedIn. I look for 2nd connections with who I want to talk to and then ask for an introduction. Your ask is easy: you are a student that wants to learn more about IB. I have found that the majority of people will respond. Once they respond ask for a 20 minute phone call or meeting.

3. Yes, try to interview now and if it doesn't work get a job and then keep trying. I don't think you need a master of finance to make this work.

4. I don't think it really matters what you get involved with. Whatever you do you want to move into a leadership role and you want to be passionate about it. Being passionate about something makes you interesting and will help you connect with people. When I was interviewing in IB, an MD told me that if I was as passionate about working in IB as I was about the extracurricular I was talking about, I would be very successful.