If you want to own a business, is PE the right path?
Currently an AN2 in IB trying to think through my next step. Long term, I’d like to acquire or start a business, and I’m weighing whether spending a few years in PE is the right bridge to get there.
On one hand, PE seems like a strong way to build investor judgment and get a better sense for what makes a business “good.” On the other hand, I’m trying to pressure test how much of that actually translates into operating capability versus being more transaction and diligence focused.
For those with PE experience, especially at the associate level, do you feel like the role meaningfully improved your ability and confidence to run a business? Or is most of the day-to-day work less applicable to actually operating a company?
Also curious how you think about timing. If the end goal is to own or build something, does it make more sense to get operating reps earlier rather than spending additional time in investing?
Would really appreciate any perspectives.
Private Equity (PE) can be a valuable stepping stone toward owning or starting a business, but its effectiveness depends on your goals and the type of PE experience you pursue. Here's a breakdown based on the most helpful WSO content:
Advantages of PE for Aspiring Business Owners
Limitations of PE for Operating Experience
Timing Considerations
Key Takeaways
Ultimately, the decision comes down to your personal preferences and the type of experience you want to gain in the short term.
Sources: Do you think PE prepares you to have your own business/be a CEO?, Leave banking to start a PE fund?, Leave banking to start a PE fund?, Do banking and PE make you a better business owner?
Bump
I’m doing a search rn and did MF PE.
Don’t you need transaction experience to acquire a business? Unless you’re inheriting it from a parent you almost certainly are going to have to do a search and so having a PE background and understanding how to diligence a company, run a process, craft an investment thesis, etc. are really important. There’s biz buying programs online that can help you if you don’t have this background but you’ll be a lot sharper if you’re coming from a PE seat. Also depending what PE fund you go to you might get rollup experience which is another way you can drive returns in a small business.
On the operating side - no, I don’t think doing large cap PE makes you a good operator of a business. Usually you’re not actually getting hands on - you’re more directing your management team what to focus on (though in some downmarket PE funds that are heavy ops-driven you may actually get very hands on). However, most of these businesses have been owned by small town owners with limited education, experience, etc. A lot of your value when you step into these businesses is cleaning up the low hanging fruit - implementing sales, marketing, raising prices, expanding offering. It’s really not that complicated if you’re smart and motivated.
I think my PE experience was valuable because it 1) gives me more credibility as a mid-20s guy trying to acquire a multi million $ biz, 2) gives me options to get a good job/go back to bschool if my search falls apart, 3) gave me money to help with my search, and 4) gave me an understanding of what really matters when you’re digging into a potential investment and how to actually effectively acquire a company (which is somewhat difficult to do in this small biz world where you have to convince owners to sell to you, dig through messy/incomplete broker-provided data, convince lenders to give you money, etc.).
Why are you doing ETA instead of independent sponsor model?
I find running and growing a biz a lot more interesting than dealmaking. That’s why I left PE.
I founded a business before and have always been entrepreneurial, and just think it’s more fun and like the challenge of wearing different hats every day and growing something tangible vs. directing investments. Deal making is kind of a slog and I don’t want to be doing that the rest of my life.
Im not for sure set on either one yet. I would definitely consider an independent sponsor model. I’m going to have to dig into the trade offs between the two models to get an idea of which seems better
I investd in search backed deal and he has a good point, assuming this is the type of entrepreneurship youre interested in (vs lets say VC backed entrepreneurship). I would add that one of the main things you will (or at least should be) doing as a SMB CEO is selling, so take that in mind.
Also, there are different flavors of entrepreneurship through acquisition and you might have more or less support depending on which path you choose, so transaction experience would be more or less benefitial since you might closer with your investors in some cases.
One other thing to add because you asked at the end the tradeoff of going straight to ops - I agree it could be helpful to get actual experience but would lean towards starting in PE.
If you’re coming from a banking seat, now is the only time you will be able to step up to a PE seat - if you go straight to doing a random ops role you probably won’t be able to go back to PE. It’s the same point people make when people ask if they should start at a MF or MM PE fund - starting at the top you can always move down market, but you can’t really move the other way. So there’s value in getting PE experience first - that opens up more ops roles (you could go to a portco or internal ops team), you can go to bschool, other PE funds, etc.
Also, assuming you will have to raise money for your search, you will have a much easier time doing it if you’ve done PE and have the connections that gives you.
I’ve been in the industry for almost 20 years. Ignore the title.
I think if that’s your end goal, PE is a good training ground and branding. But I would do that for no more than 2 years.
At most high quality places, you’ll get a ridiculous amount of responsibility and exposure. Sitting in on board meeting is super valuable. Understanding how to diligence a business and avoid pitfalls. Thinking thematically. Understanding real business quality and moats. Understand how to access and optimize capital. Sound business judgement / discipline. Etc.
If you show exceptionally well, your partners colleagues will also be great references and potential sources of seed capital.
The flip side is if you’re there too long you’ll learn bad habits, primarily you’ll become too institutionalized and less of a pirate. More analyzing, formatting, massaging, optics, narrative — intellectual masterbation and operational constipation.
In the real world you need to do enough work (but never truly enough) to make sure you’re not being dumb and then figure it out on the fly. Long term, PE is a bad training ground for that skill.
There is a ton of risk and uncertainty in the track you’re describing and the PE mindset is to do an exhaustive amount of work/diligence to build a false sense of security. If you try to do that much work / build that level of fool proof conviction in the real world, you’ll never pull the trigger and even if you do it will be with fools gold intellectualism.
Very helpful, yeah my plan so far has been to do PE for my associate years then break off into my own venture to start or acquire a business
Highly accurate and well articulated.
I think this depends on what type of business you want to own and run. I am unaware of any PE seats that actually help you learn how to hire/manage employees, how to implement a sales strategy, how to negotiate with vendors, etc. If you are looking at businesses that require that, I think your best bet is to go join one of those businesses and grow into that roll.
If you dont know the type of biz, well then going into PE and underwriting a lot of them could be a good path. PE people can talk all the time about all of their strategies, but at the end of the day the best businesses are the ones where you can go in and raise prices day one without pushback from your existing customer base. The question is how do you find those businesses. The answer to that question is understanding your customer intimately.
Working at the right PE firm should introduce you to a lot of companies serving a lot of customers. That is the reason to work there. How to actually run the business? That you can only learn by doing.
No just go do it. Stop avoiding it. PE skills do not translate.
Any opinion on PE Ops type of seats. Do they translate well?
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