I’m in my mid-30’s and probably (definitely) much older than the average poster here, but would love to hear all points of view that anyone’s willing to share.
I’ve been in investment banking for about 10 years. Currently a director. If I stay on my current path, I expect MD promote in maybe three years. I’m sure you’re all aware of the demands and risks that would come with that. I currently have no clients of my own.
Recently, a new opportunity fell into my lap. I’ve been offered the role of CEO/managing partner of a new PE fund. It would have $50-100M of initial funding from an institutional investor. I am good friends with the CEO/founder. Annual cash compensation to me over the first three years would be seven digits, which is significantly greater than what I’m currently making in banking (which is slightly above market). There would also be significant upside in equity/carry. We would be targeting much smaller companies than I am used to working with (~$10 - 20M EV vs. $500M - $5B EV). The goal would be to demonstrate a good track record over the next 5 - 6 years, attract other institutional investors, scale up our investments, and ultimately reach $500M - 1B in fund size.
I have zero private equity experience. The first 6 - 12 months I’d likely be working on my own to get things set up with lawyers, accountants, etc. Then I’d add an associate, an admin, etc.
Good idea? Terrible idea? What are the considerations I should be thinking of?
$10M - $20M EV is a pretty small company. I would go for bigger companies given your skill set. You're not an operator, therefore you require more layers of management in a company to be useful. Layers come with larger companies.
Personally, I would do it, but be ready to jump in and do whatever it takes to make a deal work if it does start going south... You can't fuck up and torch your track record like you said...
Pretty impressive $50M/$100M is already lined up. The hard part is basically done. Even if you fuck up, that's much more impressive than what you're doing now and you'd fail upwards.
Thanks. To your point, the size of business we’d be buying would likely require considerable hands-on/operational involvement. That is not where I’ve invested my experience. Yet, we can’t buy much bigger—won’t be diversified enough.
I’m thrilled with the starting capital. I’m more concerned with what it will take to establish a strong enough track record to attract more, particularly since I have no PE experience of my own. I don’t want to be running a $50M fund forever.
Just know that it will likely take 10 years to go from a $100mm fund to a $500mm+ fund. The PE fund cycle is long and new funds are slow to raise. Could mean bringing on a second managing partner. That being said, owning 70%+ of the carry pool on a $500mm fund means that you will have a clear path to 8 figures.
A first year principal who is entrepreneurial and wants the upside would kill for $50-100mm first fund. A tenured partner who wants to slow down would not.
If you are entrepreneurial and want to think about investing / business ops in a more tangible way, it’s a no brainer, in my opinion.
Definitely... RE: diversification, I think the benefit of investing in companies that you're able to add value to significantly outweighs the benefits of diversification but it also depends on your co-founder's skill set I guess - if he's used to running smaller companies then it shouldn't be as big a deal.
How diversified are you hoping to be? Taking fewer, concentrated, bets would improve your chances of outperformance compared to a portfolio with twice as many holdings. Plenty of emerging GPs will have a pre-fund track record of quantity.
That being said: Congratulations and you absolutely should do it. If you don't, in 20 years all you will be able to think of the past opportunity is "what if?"
Your certainly more senior than I, but wanted to chime in to say you'll be fine, the most important skillset you have is asking the right questions. After that, you'll be surprised how much CEOs of companies who arent even looking for an investment are willing to share in regards to their operating experience for whatever industry you looking to invest in. Having experienced advisors is the most important aspect, after that you'll be surprised how easily wearing the investor hat kicks in.
Sounds like a great opportunity! 1000% worth the risk in my opinion because no matter what you can work your way back into IB or a related role. Mega kudos to your friend for reaching out to you. You have a thoughtful and reasonable timeline and I assume checkpoints along the way to assess your progress and determine when you may need to jump. 10 years in IB is remarkable on its own, so why not pursue a new challenge with a friend rather than sit in waiting for 3 years and work to build up clients for the IB firm? I also think the LMM space is super interesting and there could be some neat opportunities for you given the length of the bull market- heck, I’d be down to check in with you a few years down the line! Keep us posted on your progress and enjoy the adventure! Live the Dream OP!
OP - this seems like this is your friend trying to convince you to join
Ha thanks—you sound like my inner voice when I’m trying to rationalize this to myself!
I'm younger than you, but have experience working with LMM businesses. m_1 brings up a great point which is, you'll have to put some thought into how you want to manage the businesses. Smaller businesses, especially legacy ones, are usually small for a reason. That can either mean there's a lot of latent opportunity or it's just a tough market and a bad business. Either way, if I were you I'd spend a lot of time thinking about what type of businesses you plan on buying, how you think about management, and what your value add is going to be. LMM PE is less of a pure capital structuring exercise, so if you're trying to get a $5M manufacturing business to $10M, you're going to want to have a sense of what you're going to be able to execute on and what your investment mandate is going to be.
Outside of that, I'd 100% go for it you have someone that wants to give you money to invest and is going to pay you handomsely to manage it. Most experienced guys/gals in PE would kill for that. Worst case, you fail upward, make more money for a few years and then head back to banking with a better perspective on the PE world.
Stupid question: would a seasoned PE professional from a $1B+ fund really kill to control a $50M fund?
Yes. Very few people on this site seem to realize it but you make much more money being an owner.
This has already been answered correctly, but the predominant answer is yes. Maybe there's a small exception of MF Principals who have a ton of autonomy, love doing large cap deals, and already bring in $2M+ a year, but the majority of people, even at $1B+ funds in VP+ level positions would love to have a stable $1M+ salary each year, committed capital that gives them flexibility to do a number of deals, and the upside to do well and potentially raise a larger fund where you're the GP.
Most VPs/Principals get stuck in the upper/mid tiers forever, making a good salary, but not a great one as the Partners take the lion's share of carry. They either look for a small fund to join as a Partner, or have to strike out on their own, taking little to no salary, fighting to raise money, all taking the chance that they can make their own fund happen.
So long/short, it's a pretty unique opportunity.
go for it.
if you don't, it might haunt you on your deathbed.
but I'm just a student so what do i really know?
Seven figures cash? Absolutely. I’m guessing director level comp is $500-800 with some portion in RSUs.
Plus you can make some clients through the PE years and if the fund doesn’t perform, bounce back to banking and leverage those networks.
Well, looooow seven-figures :)
Part of the impetus to make the move is that I expect investment banking comp to be lumpy over the next few years as the market slows down. This would protect me.
And because you don’t have clients you’re especially unprotected if things really go south for IB and upper level bankers start to get the axe.
IMO, you only have things to gain from making this jump, and you also successfully mitigate the risks of being a high paid individual in finance during a recession. The timeline for success is much more lengthy than in banking, and while it will be a struggle to develop a track record, it will also be a struggle to develop the client relationships you need to make it to the MD or Partner level.
Sounds like a fantastic opportunity if you are willing to take some risk. I would want to really diligence the $50-100m. Funding secured? Seems unusual that an institutional investor would commit that much without knowing who the CEO/managing partners/team will be and what their track record looks like.
Funding is secured. Situation is very unique. The institution is 100% founder-owned, so he does whatever he wants. Starting a PE fund focused on “good honest American businesses” is sort of a passion project for him, and he likes/trusts me.
If things go well, has he got more capital to launch a bigger 2nd fund 3 years down the road? Ie writing an other 50M cheque to get the fundraising rolling?
Family member/Friend had the opportunity to launch an office for a UMM PE fund in Europe coming from a niche industry operational background. While his situation was not exactly similar here are some key points that were raised:
lack of network/sourcing network: said person was worried about only bringing banker deals that have been highly marketed and paying high premiums.
lack of experience in industries outside his niche - no sub industries, have you done M&A in one industry only? If so how broad is the industry, is there many sub verticals.
Committing Capital: the fund will surely ask you to put some capital in - would assume 1% of the fund at least. Do you have $500k liquid to inject? Or willing to borrow part of that? That was something scare for said person as quite conservative with their investments. Money was available but had other commitments too - things couldn’t go south (kids, wife, morgage etc).
Never did PE - as stupid as it may sound, its a different business, just like that first trade or something, before you do it once its scary!
Surely more things will come back into my mind later but just raising these to get the convo going. I think you nailed the upside so wont touch on pay, carry etc that could have been very lucrative! Happy to answer any questions!
Super helpful. What did he decide and how did things turn out for him? UMM? Sounds like he probably had much more than $50 - 100M to play with.
The concerns you outlined are dead-on.
I have to spend the first 1-2 years building a sourcing network (investor knows it will take time), and we’ll have to go deeper than boutique investment banks running auctions.
My M&A experience has been 99% in tech/media—and that is the only area we will NOT be investing in. Looking for high margin, GDP-growth, recession-resistant businesses. That all said, I’ve been all over tech, from info/consulting services to high-growth SaaS. Maybe I am overestimating my ability to learn new sectors . . .
On committing capital: yes, there has been some vague allusion that I re-invest some of my future earnings. But there is no expectation of putting in anything upfront. With a family to support, I cannot risk locking up $500K+.
You are right that my biggest fear is never having done this before. What the f*ck do I know about PE?
Open a regional office for an UMM Fund sorry - in a major city (SF/LA/CHI in the US or (Paris/Milan/Frankfurt/Madrid in Europe). So capital raising wasn’t an issue as the fund had a really good track record and is expanding into new Geographies. He ended up taking an other job in his niche industry - safe path, but passionate about his job.
On building a network - I think that your estimates are spot on. Other person I know bought an Industrial company with 10-25 employees after 24 moths of active networking following the search fund model (his own capital though). Deal came up to him through the previous owner that was retiring soon. Now that he operates he already did one add-on, and is looking at a second one. Much easier when you are known for doing deals in a specific industry and sub-vertical. Competitors know you etc.
For industries, you seem to have a broader experience than him, so you’re in a better spot already. Not the best person to judge if you are over/under estimating you abilities. But are you confident to buy businesses in Industries you don’t know and especially that you cannot fall back into your safety net (TMT)?
Maybe clarify the thing with capital commitment because the 7 figures may quickly be less than mid 6 Figures...
Happy to get into more details if you are keen in PMs.
Also thought that APAE is the best to help, he gave great advice on here, although he doesn’t seem very active lately.
If you have experience in tech/media why won't you be investing in it? That makes no sense and I question the logic behind the offer if you're going to be investing in small companies which obviously will be looking for operational help from their financial partner (like hello? why would an owner of the company want to work with you? the good companies aren't desperate for money).
I work in media today (business strategy at an F50 company), also used to work in PE back in the day. This situation is a bit weird.
Lastly, how do you get $50-100M from a single institutional investor but you can't raise from others? That might be the weirdest part of this whole thing.
Oh yeah, forgot to mention: I’ve got a wife and kids to provide for.
One very important question before I answer. Does your friend have any experience in PE? What's their track record?
None.
Oof, not a good data point, but i'll do my best to give you some useful thoughts on the situation.
That level of comp from a fund that is so small for someone with zero PE experience is pretty absurd. $100MM, while no easy task for a first time fundraiser, is still not big enough to be paying that out to a single person in guaranteed cash comp. You're not going to see exits for years, so you'll have to live off your management fees in the interim.
Other people have raised the point, but moving from such large deals to some of the smallest is going to be a rough adjustment for you. It was difficult to me and I had at least sniffed the range of some of the smaller companies I now invest in.
Ultimately, with PE you're going to have to win deals and source, especially in the LMM where valuable people definitely have to be a jack of all trades. You're not winning a strategic alternatives mandate from a client, but you are finding a target investment, figuring out if you like it, convincing them to like you and take your money, all while simultaneously executing as you currently do. Very large firms, Platinum Equity, as example have separate deal sourcing, execution, diligence, etc. But at the LMM you better be good at most tasks, not just directing traffic between service providers.
Track record is everything. If you fail, you will likely be out, unless you come from the right family, etc.
All that being said, what do you have to lose? You could go, fail, learn a lot, and I'm sure the investment banking world would gladly take you back. Guaranteed cash comp at that level for a new fund? If that is real, then yes, take it. Knowing what I know, I don't see how you can lose taking the chance and seeing where it goes.
Being a banker for $500M - $5B deals has as much to do with investing in $10-20M EV companies as commanding a battleship has to do with driving a jetski.
The lower middle market is an unsophisticated mess. Management "teams" don't exist, there is usually an owner/manager who runs a business whatever way he's learned to do it. Most functions you would think are critical to running a business - strategy, finance, sales, information systems, budgeting, forecasting - are frighteningly absent. CEOs turn out to be plant managers, CFOs turn out to be bookkeepers, and you'll find yourself looking around for the adult in the room.
You're handcuffed from performing real diligence. There won't be a data room, and the numbers you get from the company will often be accompanied by a shrug and a comment of "well we don't track that" or "you shouldn't need to see that." Your QoE might come back with a note that says "we have no idea if any of this is actually true." Any knowledge of "the industry" is hard-won and closely guarded by the few who occupy that particular niche, so hiring a consultant to run a buy-side DD won't do anything other than run up transaction costs.
Every deal you think you have locked up will go away, twice. Sellers are random-number-generators with egos and very, very odd expectations for how a transaction process should go. They have advisors whispering in their ears -- family, wealth managers, lawyers with "business experience" which means they've written up formation docs once or twice -- who are sources of absolutely baffling advice that you'll have to work through. And then the deal will die again, right before it comes back for no apparent reason.
...and that's all before the transaction even closes.
I'm not giving an opinion on whether or not this is something you should do - it sounds like there are a lot of reasons why this could be interesting and potentially very lucrative. But the way to look at it is as if you were an entrepreneur, starting a company doing something for which you have only very general experience.
Yes, bang on. I remember the first time we brought someone on who had PE experience at a $1B+ fund. None of what he said would make sense. He severely overestimated the amount of leverage we could get on deals, wanted to hire consultants, etc... It was good because I learned a lot about how 'real' PE firms operate but if I had done things his way...we would have racked up $700k in DD costs on a $7M deal which makes 0 sense.
Did he end up adjusting or did you end up firing him? How come those things didn't end up coming through in an interview? Did you not ask him how he imagined a transaction in your field?
Also, if I remember correctly you run a ECommerce/Direct-Brand/DNVB Focused LMM PE type firm yes? What was his reason for joining from a 1b + (TMT focused?) Firm?
Thanks!
OP it will probably serve you well to consider and reflect on Layne Staley's response above carefully; regardless of which decision you make. Don't let the eloquent manner in which it is written to (pleasantly) distract you from the fact that it captures the "sweat and tears" of the LLM. Best of luck with your decision!
For what it’s worth, I did spend a couple years at a boutique working with $15-50M companies, so I do have some familiarity with the lack of organization/professionalism.
+1 SB - completely agree with these points and m1's supplementary comment
This x1,000. Plus, usually business owners of companies this size have massive egos and are sociopathic.
Very good post, I went from working at a bulge bracket in investment banking to lower middle market private equity and it was a complete change from what i was used to.
As noted above, most owner operators run a very lean unsophisticated team which has a significant impact on diligence and ownership post close. If you want to be very successful and add value I would plan on your firm playing a very heavy role in operations across all functions within the organization post-close. Some major areas you will need to address in diligence and post-close include: i) work with the owner to build out a strategic plan during diligence and refine/execute on it post close (understanding how you will grow the business, the market opportunity, the potential returns, and the risks is very important); ii) build out a management team and other functions in the organization which will be complicated and drive down EBITDA early in the hold but will be needed to take the business to the next level; iii) develop a growth strategy, build out a sales strategy/process/team; iv) professionalize / standardize / improve operations whether it be service delivery, manufacturing, supply chain, etc.; v) build out effective financial reporting and KPIs to monitor business performance.
I would definitely bring on a partner that has operating experience given your background as they will bring much needed experience and owner operators will be more willing to take guidance from someone that has sat on their side of the table. I disagree with your strategy to add more companies to diversify the portfolio. I think you will have a lot more success really digging in to find the best investment opportunities and getting more involved from an operational standpoint. Owning and adding value to a large diverse portfolio of businesses is simply not scalable for a firm of your size. If you are concerned about risk try to find more defensible less cyclical businesses. Some things to think about: i) find an owner and team you think would be a good partner and get them to roll significant equity to make sure they are bought in; ii) build out a good strategic plan you are confident your firm can execute on; and iii) spend a lot of time in diligence digging in to confirm the strategic plan will work, numbers, market opportunity, market position / competitive landscape, customers/suppliers (call all major customers/suppliers), read and understand all the customer contracts, understand all the industry regulations and make sure the company is compliant, and make sure you understand all the risks because these deals are messy and there are always red flags somewhere (you need to get comfortable with the risk and if its an operational issue have a plan to fix it post-close). iv: get a lot of protection in the reps and warranties because these deals are messy and sellers are often less sophisticated so you can get good terms; v) find lower cost lawyers, accounting firms, and other consultants because using top firms will not be economical for these smaller deals.
Great comment! Particularly the point about having a partner with operating experience who can understand the risks involved and can help fix issues (of which there are typically many).
Seems like a good idea to me. I made a similar move not long ago and frankly not nearly as good a deal as what it seems you're being offered.
To me, the most obvious deciding factor between two risky paths is which one will you be better at? Not that you're not good at IB as I'm sure you are. But the way you described your position sounds a bit fatalistic . . ie "we'll see what happens". Sounds to me like with this PE role you'd have a lot more control over the outcome.
It also just sounds better on the margins. Cue the typical buyside vs sellside points except with the added benefit of more money right now.
I have no particular confidence in my ability to win clients. I’m not particularly discouraged either. Just don’t see it as a sure thing. Could be great, could be total fail.
I don't see why not, even if you don't do well you'll still be able to transition back I would think. Unless you really love IB and think you have a clear path ahead at your bank, I would go ahead with this. Regardless, Layne, m1 and Harvey laid it out very well.
Assuming this isn't a troll post.
A) PE is late in the cycle. Existing shops don't know how to deploy the $2T in dry powder they have. Firms have been moving downstream aggressively. The Jimmy John's by my office was literally bought by a Boston PE firm. No BS. There's more competition for even low quality businesses and valuations are pretty high and trending higher. Could your firm handle a slow-down? Other PE firms have a track record to fall back on, so there's more at stake for a start-up shop. Many targets may have received offers previously. Others will shop your offer around. If you find something, always question what the catch is? If it's too good to be true, it probably is. Even the big PE players occasionally get burned (but probably because of overly optimistic projections and/or too much leverage.)
B) Capital markets are pretty robust, but will a bank be eager to give your start-up debt financing?
C) You better have a ton of patience. A lot business owners don't have shit documented, it's all in their "head". They won't know the fancy IB terminology you know. Last thing you want is to intimidate or frustrate a potential seller.
D) Many business owners have ego. Maybe understandably so if they built a ten figure business from $0. But because of that they often have a chip on their shoulders. Or they think their businesses is worth way, WAY more than it really is. Some sellers have outrageous demands (e.g. you can't do this, change that). Fuck you, I'm buying the business. How are you going to add "value" if you can't lay off redundant employees or can't do business with "immoral" customers?
E) Some owners hate PE or think they should. You may have $$$ to offer, but you may still get the door shut in your face. “Search funds” will probably be a thorn in your ass. They claim to be “anti-PE” and are willing to bend over to close a deal.
F) Be ready to get your hands dirty in LMM. It won't be pushing papers and wearing shiny cufflinks like in IB.
My advice is to see if you can wait a bit, especially since you don’t have any PE experience. Will give you some time to lay the ground work (i.e. do research, make contacts/network, find potential targets, etc.) Once the music stops, you’ll find more targets, willing and reasonable sellers, lower valuations, and better upside (since you would be buying “the dip”).
If you can handle these truths, you may end up making a ton of greenbacks. Good luck either way bud.
wait, doesn't roark own all Jimmy Johns?
Roark owns Jimmy John's Corporate (owner of the intellectual property (aka the brand) and receiver of franchise fees/royalties).
The individual stores are independently owned. Use to be entirely small business owners/entrepreneurs, but PE is in it now as well. Depends on the franchisor. Some, like McDonald’s, won’t let PE even touch stores with a 10 foot pole. Starbucks and Chipotle, in my opinion, would make for great franchises, but all stores are company owned/operated to ensure quality control.
Of course PE firms don’t own/operate single units, the goal is to scale by acquiring and developing as many locations as possible.
Great post. Can confirm the difficulty sometimes faced with owners in LMM opportunities (~$5m EBITDA). Was leading execution on a PE deal for a small logistics company, was on-site for multiple weeks, did all of the diligence, had financing secured and a handshake agreement (LOI) and the owner decided not to sell at the final stages. Awesome experience but a terrible outcome...
How is this any different than doing all the DD in a competitive process only to lose out in the final round of bids?
Losing deals is a fact-of-life regardless of the size of company that you're investing in.
I understand that some of the more experienced posters on here have their concerns regarding your lack of PE experience, the pitfalls of the LMM, etc. but from my (very inexperienced) perspective, the risk/reward is such that it makes no sense not to seize this opportunity.
Fair points generally speaking. It's worth adding that by jumping to the buy-side the OP would do well to understand: (a) if this opportunity plays to his strengths; (b) what type of risk will he be getting paid to "hold" (the comments by Layne Staley, NYMonkey371 and @Armhoo1" were great in that regard).
I don't mean to offend but given your comp structure, I would not want to invest in your fund.....
You're managing $50 - $100 million and are already paid 7 figures? So basically, you walk away a millionaire regardless of the outcome. At the same time, a sizeable chunk of the investors' capital gets eaten away every year (your comp plus whatever other G&A and salaries go into it.)
Seems like a sweet deal for you but not investors.
Comp and expenses are being externally funded for first few years.
Oh ok. That's works then! Seemed a lot to be dipping from the AUM.
I would say do it - especially if you have sector expertise / relationships you can leverage. If you already have money from an institutional investor, you have de-risked the move substantially. I've been saying for years that I would like to do PE later in life at a smaller / MM fund if the right opportunity came along (was a a PE associate and came back to banking after a couple years).
At the end of the day, it all comes down to your eagerness for something new and adventurous that can quench your thirst for knowledge... balanced against your risk profile and obligations (e.g. family).
Will you share with us a bit about why you went back to banking?
No problem, please see the following post where I delved into this a bit. Happy to answer any follow-ups.
https://www.wallstreetoasis.com/forums/there-and-back-again-a-bankers-t…
Congrats, sounds cool. Good comments on strategy, etc. though I think those are some what less applicable to what you should be considering. Those details can be hashed out later - you need to be thinking about are you capable of doing the job and what is the risk profile (aside from returns) of your position as you learn the ropes.
The only concern I'd have is that you'd be setting yourself up for failure - #1 item on my list would be getting a contract with guaranteed comp (is that what you have or a loose agreement?) Last think you want is for things to not go as planned operationally and then have the guy realize you aren't right for the role and cut you loose. Being a banker vs. an investment professional is huge difference, though rooted in similarities. You're compounding that by not just joining the buy side but leading your own fund. You're are so green you don't know what you don't know. There are so many intricacies of running a fund/investing that need reps - similar to banking, its about the deal reps. Frankly, to me its insane that this guy would even hire you, but that's on him not you. Many people first going to the buy side are gonna be gun shy about about closing and it takes some times getting used to investing without perfect information - its one thing to have a nice write up its another thing to write the check.
If you haven't already, I'd just get the guy on board with honest conversations about what you can do and what you can't and that there will be a learning curve involved. Assuming there is no guarantee, this isn't a scenario where I'd want to over promise because things could get ugly.
At the end of the day, I doubt even if this blew up your career would be ruined as you've proven to be successful. Its more so trying to mitigate a potentially downside scenarios.
Were you seriously going to do banking your whole life? This is definitely something I would wanna do in the future... Hire me!!
You would be crazy not to take it and quite frankly he is crazy to hire you (no disrespect). If you are in the sub 50m EV space I would focus on four things of which three are quite interrelated:
Get a good operator into your business / maybe even structure a deal with 3-4 people you know / from your network. There often are people in between jobs or retiring etc. who would fill this in executive capacity and other people can do that via board roles. If you have an operator in your team / bench, you limit downside extremely because you have never run a business and probably wouldnt be able to (no offense - same is true for me and most others). The operator is downside limiting and also the biggest catalyst you have in "changing" the business. Small businesses can actually fall apart because of people / fuck ups so you need someone somewhere who could go in and make sure it wont be a zero. It could even be someone who does this part time i.e. spends X days with the Company in a executive chairman position or whatnot. They should be able to make quite a bit of money (more than what you think is fair) on the premise they put in some money too. You are a senior project manager as BB banker so I would play that skillset to your advantage.
Identify vectors for value creation. Given you cant hammer leveregage on deals - knowing exactly what you can do to the business will help. I did sub 50m tech deals until recently and for me it was always the same: Take a product from local to international, productise toolsets / consulting knowledge, move/ supplement direct with indirect or vice versa, improve GTM efficiency, focus on strategic product positioning / partnerships with a clear view on who would buy this (strategics or further "growth" story for PE) and implement proper strategic planning (starting with the basic software products etc.). Ideally have a "person" for each workstream (could even be a consultant you really like who jumps in for a couple weeks etc.). I dont necessarily mean hiring people for each, but have someone you can call. Ideally, develop a 2-3 people team that can jump on boards with you but also is the same team you can call on in DD for example. Be generous to these people (in general, give more to other people than you think is fair in the beginning - structure it so they only make real money when you do). This could be in addition or replacing point I if the CEO and team is so good you dont want your own guy circling over them.
High conviction sourcing approach. Stay with assets you are really comfortable with in the beginning. Dont buy crap. If you cant get cheap quality buy okish priced quality. Small businesses that are cheap are definetely that for a reason and you dont have a base line leverage return running for you. This could be based your past BB experience or the operators (see point 1) bringing assets in. With the latter i have had very good exp. You would be surprised how many people know people who would do XY. Structure the deal favourable for everybody i.e. upside share over X but low upfront payment etc. Will be case by case dependant but there often are ways to structure deals so the person rolling over shows how comfortable the people selling really are. I would rather work on a good deal which might look expensive to outsiders for a longer time than start bidding on low quality companies for which you have no plan or network.
Think about bolt-on / tie ins whereever possible. Its a great way to scale into something that is working well vs. new acquisition risk. One of the biggest drivers of exit in this size bracket is size of asset so its a great way to not only deploy more money in a risk-averse way but you actually improve odds of a quicker exit.
One quick edit: As M1 said above: don't think about this as PE but much more as you finding guys to buy a business with and from. The "institutional" part comes at some point. Find people you trust who DD the asset with you. Focus on the key elements only because speed will increase your odds of buying the asset (long DD exc. kills so many small deals...) and quite frankly in the small cap space, you really don't need that much more. Get an accounting firm to do the basic number stuff and a cheaper law firm to do red flag checks. For the rest you need 2-3 guys, not consulting firms. Don't spend too much on good logo consulting firms. If you need someone to ask the right questions for you, you shouldn't buy the assets. No one who is not putting in some money (or is in any way part of the distribution when the deal goes well) should be able to convince you to buy an asset.
I've been throwing out a ton of SBs here. Really good posts by some of the PE folks on here.
I got your back, homie!
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