Looking for someone to poke some holes in my sloppy Friday night thinking here.
Basically, I don't really see the point in selling any company unless the offer is stupid/far above market value. I get why traditional funds do it, but if you were managing your own money, why would you do it? It seems to be incredibly inefficient. I know a few big boys are offering evergreen vehicles now.
Anywhooo...
Finding a suitable place to park capital sucks.
Finding fundamentally great businesses is difficult. Regardless of your specific industry focus...unicorns with beautiful cash flow mechanics aren't prancing around, and if they are, then some investment banker is trying to sell you the unicorn for an insane multiple.
Then there's transactions...running DD, hoping the deal doesn't fall apart 87% the way through, then executing in-line with how the deal was underwritten is all real work/money/time. If anyone has spent any amount of time working in PE, they know just how frustrating this is. The staff tied to this part business is also very very pricey/hard to nail.
Then there's the pressure of deploying/sitting on cash. Every day a dollar sits in your bank account = money on fire.
Rebuilding/Sourcing Talent
You lose access to great talent/can't build shared services out for the portfolio. This is probably my biggest regret any time I have exited a position previously. It feels almost like you're pressing the reset button.
Currently can more or less move people around between portfolio companies when I need help with something specific, and it's quite nice + cost effective. Basically shared services taken to the next level as you can give these people equity upside tied to the whole portfolio. It's a great recruiting pitch for everyone from senior management down to entry level managers/technical specialists. The upside is easy to pitch when there are multiple portfolio companies and new opportunities are always opening up.
In turnarounds specifically since you're hemorrhaging cash from day one and firing a lot of incompetent people quickly - you need a bench of people you can bring on quickly to stop bleed. Yeah cash can help with this, but you're not necessarily going to be able to recruit faster. Just went through hiring a COO and the guy I ended up with was half of our budget, but had to interview ~65 people.
Portfolio Level Debt/Bigger Balance Sheet
You can get leverage at the portfolio company when buying a new company. Debt is cheaper when you're getting it on $5M of EBITDA instead of $2M.
Fund Raising/LPs/Etc
Evergreen structure is much easier to manage. Dealing with LPs is usually a huge time sink that doesn't help your portfolio. Even worse, the time usually comes from founders of a firm. Plus you can avoid a lot of objectively stupid decisions. For example, sitting on a great company with solid growth potential but you have to sell it because your fund's lifecycle is coming to a close? Depressing.
Plus no pressure to raise a new fund as soon as your IRR looks sexy, less time spent managing new LPs, etc...
Thoughts?
