Currently working out our next moves to scale our little PE operation and the most sensible approach seems to be continuing as an independent sponsor but at scale. So far we've raised capital from strategic investors/FO/etc... to supplement our own equity cheques when we do need help taking a deal down.
Our next deals will be much larger, and in all likelihood I'll have to switch to working with a real LP. Other than capital, I really want a partner who can show us the ropes and assist when we do need help taking down larger deals. I only have experience working with companies pushing sub $20M in revenue and I'm sure there is a lot we will fuck up when trying to take down our first co pushing real big-boi numbers.
There are more or less three options that I've explored so far...
Other Private Equity Firms with Flexible Mandates:
Have spoken with a few larger private equity firms that have a flexible mandate and are focused on the same space as us + could likely add a lot of strategic guidance/help. They want to write the majority of the equity and then have us deal with the asset/execute. I'm fine with this, and I think this would provide us with the best learning opportunity. I should add, I've also had the best conversations/meetings with these guys. All very much so on top of it, and know the industry inside/out plus they seem to "get" what we're doing the best. I have barely had to explain much and they seem ready to go. My favorite part about these guys is that even though some of them were very much so removed from the day-to-day tactical operating end, they still knew the industry very well and asked better questions than hardcore operators would....and in a space that's very difficult to stay tactically relevant in.
Family Offices:
Spoke to four so far and have not really been that impressed. Obviously this will vary a ton based on the specific FO but I also don't feel that they can teach me much...especially compared to the PE firms I have spoken to. That said, it seems like terms would be better for us if we go down this route based on very prelim conversations I've had. I'm worried that they would require a lot of hand-holding and explanation though. All that said, maybe I've just spoken to poorly run family offices? Did I just fuck up and call the wrong places?
Equity Partners/Traditional LPs:
Found 5 or so firms that would fund the deals we do and work with independent sponsors frequently and called them all. No real thoughts about them other than they made it really clear in most places that they can not add hard value past a cheque and intros as required. There doesn't seem to be a cheque writer in the industry I focus on specifically that partners with independent sponsors on a regular basis...so hard to find good ancillary value from these LPs?
So...questions:
What's a good resource for finding standard IS fee structure(s)? I have PE Hub reports. Are these fairly accurate?
Did I fuck up and not talk to the right FOs?
Is heading down further into the IS path the right way to go or should I consider a traditional fund structure?
Who else should I be speaking to as far as potential equity sources go?
What should I watch out for specifically? Common pitfalls?
What conferences are worth going to in order to meet LPs? PEHub ones any good? I've run into a lot of potential LPs just being around but never really focused on it too hard.
PM'd ya.
PM'd you.
Hey guys, appreciate all the intro offers but I don't really want to talk to too many potential LPs yet before we are a little further into the process. The people I've talked to so far I know/have history with so I felt fine calling them and shooting around numbers but I wouldn't want to risk looking less prepared with an intro from someone nice enough so stick their neck out for me. :)
Sure thing - McGuireWoods Independent Sponsor Conference is in a couple weeks if you want to travel to TX, could be a great way to meet other sponsors and FOs and find some answers regarding common fee structures and other strategies folks have employed to find solid capital providers.
Wow looks solid and weirdly affordable! I know a few of the guys speaking. I'll be there! Thanks for the heads up James!!!
You should consider connecting with the folks running Nextvest. They're basically a large network of independent sponsors and family offices doing direct investments in the LMM. I think of it kind of like AngelList for PE. Their site says no membership costs but they vet everyone on the platform.
Thanks I'll check it out!
Just bumping this. Anyone want to jump into the questions in the OP?
Great, I wrote a long reply from my iPhone and after i tapped 'Add Comment' it disappeared... Ok, here's again my view.
The traditional LPs that write really big checks (e.g. pension fund) tend to choose firms set up by people coming out from MM/UMM/MF, even those (which are not all) eager to do first time funds. From what I've learned about you, this is not your case (not sure about your partners though) so I'd consider this a rather uphill battle. The other problem here is that even if you do a deal that is significantly bigger than your usual size, it could still be not big enough to bring it in the radar of this kind of LP.
The easiest way to do what you are planning to do, is to find a 2-3 times bigger deal than the your usual size, write a check for your usual size and let other PE in. I wouldn't be surprised to hear that they are happy to partner with you, even to let you lead the deal as they'd be happy to "exploit your operation capabilities" (in other words: to let you do the heavy lift). From here, you will begin to earn some reputation that could help you in scale up even further in a somehow controlled environment where the other GPs will help you limit the scope of your fuck up.
Having said that, the real game changer would be to land at the right FO, because the right FO can give you both huge resources and introduce to other backers. The problem with this is that the FO universe is so complex, articulated and opaque that the only way to find the right match is to meet tens of them before finding the right one.
Thank you & frustrating about the deletion!
On the LP side, I haven't talked to anyone that is "massive" like a pension fund for the valid reasons you outlined - we're simply too small for them. Most of the providers I've talked to seem to write between $10M - $50M in equity and we're only looking for ~$10M to $20M to take down a distressed company.
It seems like you're on the same page re: another private equity firm in our space being the best to partner with? Especially if they can help us with inevitable fuckups? They've certainly been the best to talk to so far. A few of the partners I spoke to offered to write checks personally for some of our deals currently on the table, which I felt was a nice gesture/vote of confidence. The big thing too for me here is that I think these other PE firms could move much much faster than anyone else because they understand how important it is to move fast when working on a distressed deal.
On the FO side...do you think the resources they bring to the table are really comparable to those that a PE firm in our space would have? My worry is partnering with an FO that really doesn't get what we do and can't move fast enough, especially when we're focused on distressed deals? I can actually get access to a lot of FOs through YPO/EO...but like you said, definitely a grind.
Thanks for your help BTW - appreciate it!
Again, the answer is simply that FO side is a wide, heterogeneous environment. It ranges from a small multi FO set up by a couple of private bankers who struggle to understand what a LBO is up to a multibillion single FO that employs 50 people cherry picked from the top institutions with a very sophisticated approach.
On the check size, I personally know about a single FO with AUM in excess of $5B that doesn't write checks below $5m, because everything below is simply not meaningful.
In addition, consider that the universe of FOs comprises also entrepreneurs that sold their business for tens/hundreds of millions and don't have to stick to specific risk management techniques and portfolio weights, in particular if they come from a similar industry where your distressed company is.
Thank you!
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