Private Equity or Pizza Equity?

So here's my dilemma.

I'm working on finishing my undergrad. Long story short, one thing led to another and I was able to find full time work in commercial banking (including leveraged finance). Since I was working for a regional bank and wanted to move up, I felt that my unfinished degree would get in the way.

Breaking into PE was the goal. Even got some interest from an UMM PE shop out of Chicago. At the same time, my uncle is willing to sell me his business. He started a pizza shop 35 years ago and is now getting ready to retire. The business is getting sold one way or another, the question is, will I be the buyer?

His store is in Pennsylvania, where the cost of living is awesomely low. From what he tells me, I can earn $150-180K as a full-time owner/operator. Since I don't have significant equity saved up, he'll carry a seller note for a couple years and then I would theoretically refinance. He's got money saved up for retirement, plus I would be paying him on the note monthly.

As sexy as PE is, there are pros and cons to everything. Depending on the market, there's a chance I can earn up to $250K (including bonus). The caveat is that its going to be a market with a higher COL than Bumblefuck, PA. BTW, my uncle's pizza shop is not too far from UPenn, so its not extremely rural or anything. According to him, I can potentially earn more than he's making as a younger, more energetic/enthusiastic operator. The fact that I'll have to wear multiple hats is a double-edged sword; it won't be the same boring old tasks everyday, but the buck will stop with me. There isn't any prestige (possibly negative prestige? lol) and I won't be surrounded by white collar professionals (but hardworking folks nevertheless). There's a chance the business could fail under my watch, and there's a chance I could sell in a few years for $500K+. Even then, I won't be a millionaire by 30, but I'll be close enough for my satisfaction. Obviously, there wouldn't be any "exit opps". I'm not even sure how competitive I would be in the work force after an entrepreneurial stint.

If I can grow revenue and groom a loyal employee, there's a chance I can get superior work-life flexibility. Yes, no employee will work as hard as me as the owner, but if you pay fairly and treat employees with respect, I know they'll put in their all.

Lastly, this is rare opportunity. Either I take it or leave it, but the clock is ticking. Obviously gotta do what's right for me, but I value the feedback of other like minded people (especially those who have a background in PE or entrepreneurship!).

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Comments (72)

Most Helpful
Feb 26, 2019 - 5:35pm

I love the tongue-in-cheek response above mine. It's worth considering, although important to note that you can just about never find someone worth their salt (will work as hard as you would) in the ultra lower middle market to comfortably allow someone else to be the primary operator.

Speaking seriously, at this stage in your life you should be thinking about finding the things that offer you the greatest potential to make yourself scale. Put another way, you want to be where you learn the most, not necessarily earn the most.

Done well, life looks like a logarithmic function, not a linear function. The only way this can happen is if you acquire key skills, knowledge, and relationships up-front during your 'flat' or negative period, because as you start to apply them, your trajectory steepens and you start to earn and do more every year for less on your part.

Looking at your situation, it's clear that private equity is the path that increases your scalability. Once you know the full end-to-end aspects of the role (sourcing, structure, oversight, exit, and fundraising), there is nothing preventing you from applying it to companies between $10m-10b TEV, whether as an employee of someone else's fund or as first man at your own.

The pizza shop opportunity does not seem very compelling. It is not a rare opportunity; the only thing uncommon about it was that it required no effort to source. There are higher-margin businesses of similar revenue and earnings that will support an identical financing structure but be way more (financially) responsive to new ownership.

There is nothing preventing you from pursuing them through the search fund or independent sponsor model with 'nights and weekends' work while carrying a day job. I have numerous friends who have done this for businesses between $15-700m in TEV. They left places as varied as Podunk-Partners-in-Denver and Carlyle.

One other lens to look at this through is switching cost. If you dislike a role in private equity, you can move to another role at a similar firm or change industries altogether simply by interviewing and providing two weeks' notice. If you dislike being a pizza proprietor, congrats, until you exit that business (ultra-lower-middle market businesses like this tend to be illiquid as fuck), you're stuck.

In short, you're not only going to get closer to your 'millionaire by 30' goal in private equity, but you're also going to learn something priceless: how to successfully close on and manage businesses. That will set you up to earn millions per deal for as long as you want to play ball.

I am permanently behind on PMs, it's not personal.

  • 25
Feb 26, 2019 - 6:36pm

I like your optimism, but how realistic is what your saying? Based on PE forums I've read on this site, it seems to be that many folks get burned out by their 3rd year as an Associate. That's understandable, given the workload and pressure. There are people asking about exit ops from PE lol. Plenty of people don't return to PE post-MBA, including those with pre-MBA experience. So with all this being said, what are chances you'll end up a Partner, let alone a firm founder?

Even though PE firms are leaner than say, banks, there are still hierarchies, and with hierarchies, come office politics. A good portion of any job is navigating office BS, like it or not. When I was in commercial banking, the job was entirely different every time I was assigned a new manager. Old managers would jump ship or get promoted. New managers would have their own way of running things. Sometimes it was for the better, sometimes for the worse, but always inconvenient. Plus, with owning a business, no one can pressure me into getting an MBA, unless I want it. PE firms can hold that over your head and prevent you from moving up. That last point may relate to office politics.

With a business, I can grow personally and professionally by opening more stores, franchising, partnering, etc. I think you're underestimating the skills that can be acquired via entrepreneurship. If all goes well, its possible one can move on to bigger and more lucrative business opportunities.

And if you think about it, the richest of the richest didn't make their billions from PE; its exclusively through entrepreneurship. I don't know exactly how much my uncle is worth, but I get the feeling its more substantial than most would think. His earnings have been above-average in a low-cost market, he (and his business) are free of debt, and I know he has investments in commercial real estate (e.g. hotels).

At the end of the day, there are just as many wealthy entrepreneurs (possibly more) as there are wealthy PE professionals. You just don't hear about the former as much. Many like to be under the radar, but when I was in commercial banking, I underwrote a deal for a guy worth north of $1B. His audit and tax returns were literally 250-300 pages! I was definitely caught off guard when I started working the deal!

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Feb 26, 2019 - 8:13pm

I mean this kindly. You are reading forums; I am living it as a principal running deals of my own in private equity and private credit. I've observed a couple things:

  • the cream rises to the top
    • yes, there's attrition, some people don't continue up the ladder; skipping all sugar coating, if someone is worth the seat, they get the seat, whether it's at the firm they became an associate at or obtained through a lateral; if you can source and manage and exit deals well, you will get promoted, there's a simple scarcity of people that can do that at a consistent high level
    • yes, politics absolutely suck and are an unavoidable element of any shop larger than 10 people; this is solvable by moving to (a) a shop with a healthy culture / (b) a smaller shop where by laws of nature there's less of a formal hierarchy; self-aware, smart people identify a mismatch on this dimension and proactively move to a place that's a match for what they're comfortable with
  • the MBA is not as much of the be-all, end-all element in private equity as it used to be
    • long story short, there's an entire audience of parties who are interested in people currently in private equity who will gladly make a hire without the academic credential; there's been a relative explosion in hiring within the family office world in the past decade, and there's also been a bunch of spinout shops launched by new-generation managers who care less about *preftige* and more about what you can do as an investor than whether you went to one of two acceptable business schools ... both love two-and-two guys who are looking for a long-term seat without having to go back to school

I'm not downplaying how much growth comes from living in the trenches as an entrepreneur. I also know that a pizza shop is structurally limited in the opportunities it presents someone to scale. You can learn about supply chain, pricing, marketing, and operations ... for a low-margin, low-volume, location-bound business with no moat at all.

A private equity role can (but is not guaranteed to) teach those same topics plus more (actual deal work, negotiation [in a different way than you'd encounter trying to get lower pricing on flour and sauce from vendors], board management, and a litany of others) ... that are applicable to businesses of any industry, any margin, any size, any location.

I'm not disparaging entrepreneurship through acquisition. It's one of the most intellectually-stimulating classes at both HBS and GSB, has attracted a fantastic community of hard-working and sharp people, and is one route I've practiced in the past. If you re-read my comment to the OP, it never disparaged this route, I actually encouraged him to keep his eyes open for similar opportunities of a better caliber.

My overarching point was that if this is an interesting route, it's worth (a) developing and honing a robust and transferable skill-set first / (b) finding a better asset to acquire and operate / (c) ideally rinsing and repeating b with more than one play simultaneously.

Side note: if you think the lifestyle in private equity is demanding relative to entrepreneurship, let me tell you you've sure as shit got that backwards. If you're a (highly-paid) W2 employee, you get to shut down for the night and worry about things tomorrow. When you own something, you're the one who has to get up late at night because the place flooded, be the first one in the door every single day, hire and fire and hire more and fire more people, deal with everyone's psychological or emotional drama and play peacekeeper, lose sleep trying to juggle the actual operations of the business plus the strategic steering aspects. All of this gets easier the larger scale a business you have because you have the resources to hire people to take over all kinds of tasks, but the simple point is that the buck stops with you on everything.

Lastly, you're right that the single most exponential outcomes belong to entrepreneurs rather than investors. I actually believe the opposite about who you hear more about: the successful founder gets way more airtime than the silent guy stroking the check does.

I am permanently behind on PMs, it's not personal.

  • 13
Feb 27, 2019 - 11:17am

I had a similar decision to make and ended down the small business route. I attended a top target and worked at a top BB. Here are my thoughts:


  • You are your own boss. Hours will be just as intense but you have more control of your schedule.

  • Tax benefits.

  • Potential to expand and create a business and possibly sell to a lower middle market private equity firm. You could be the guy who has 10 pizza shops by 35, with maybe 1-2 million ebitda, and sell to a lower middle Market or Search fund guy for 5x. What I'm trying to get to here is that you have unlimited upside. You're salary/compensation/carry is not determined by your boss.

  • Less competition. Looks like the best and brightest these days are heading to top tech firms and high finance. Small business space is being ignored. My personal prediction is that there are way too many investors and not many small business entrepreneurs. If the best and the brightest are all on the finance side, what do you think will happen to the few businesses that are still in operation and profitable? Valuations will start moving up. You are already seeing a ton of dry powder in the private equity space. I wouldn't be surprised if lower middle market PE firms start buying at 10x multiples in the next 10 years.

  • Love life. If a girl loves you as a pizza shop owner, she loves you for who you are not for your money or status.


  • Love life. Yes, this is a pro and a con. Do you think a high earning physician/lawyer/comp sci/finance girl is going want to marry a pizza shop owner? Lol. This is a much bigger con than you think. A lot of people want to do the dual income nonsense with a steady life, but I much rather prefer marrying a girl who loves me for who I am rather than my job. I would prefer a supportive partner as a spouse rather than another earner.

  • Prestige. No one in society will respect you as a small business owner. Very unfortunate but this is the type of society we live in. I have lost many "friends" and consistently receive harsh judgements from family.

  • Disposal income. All of my earnings are being reinvested in my business. I just meet by basic lifestyle expenses (no fancy cars or homes). I do not invest in the stock market as my rate of return is higher if I reinvested in my own business.

  • Risk of losing everything and going nowhere


With all respect to APAE, I do believe he is giving you the right advice. However, I feel that he is painting the industry in a rosier picture than what it seems. There is a post on an older thread where he mentions that a 10th year Mananging director can make 7 million a year. While I do believe this is possible, this is hardly the case and highly unlikely. The UK has mandatory regulations requiring banks to report the number of individuals who are compensated over a million euros (aka code staff):…

In the UK, there's only 7 Goldman employees who were compensated over 6 million euros, most probably all senior partners at the firm.

From my old firm, I personally know some VPs who were laid off and could not find a comparable job. Some tried entrepreneurship, but with a family and children it's hard to justify especially since most VPs do not have substantial savings. It's much tougher to pull of when you're older.

Regarding business school, I do not know how M7 b schools view small business experience. I have heard entrepreneurs are looked at a negative light? Maybe someone can chime in.

I would personally take the the PE role if I were you. I never worked in PE, but I do feel it would have helped greatly in building my business, even if it's for a year. That being said, a year is a long time. You could theoretically learn everything online ( it will also probably take over a year to settle in your business). Go on bizbuysell; I do not believe your uncle is offering anything special. A business that does 180k net can easily be bought for a very low multiple. However, it could be a good deal if your uncle offers you good terms. He may see your hard work and efforts and give you the business for nearly free. Good luck

Feb 27, 2019 - 11:47am

This is the best addition so far.

I am happy to see multiple points of feedback that my original comment wasn't clear enough in highlighting that if entrepreneurship is of interest, it's worth pursuing, but that the opportunity has to be the right one.

I thought about this a bit more given all the notifications it's generated. Put simply, if you want to own an asset, find one that you can scale really well. I remain dubious that a pizza shop fits that profile best. It may fit, but not as well as other things that are easily available to you (through broker platforms like the one joe419767 mentioned or Axial or similar).

This doesn't come from any sense of snobbery, I'm helping two different guys out of the HBS search community right now while they close on $2m and $6m lower-middle market transactions.

If you want to alleviate the 'branding' issue joe419767 alluded to (which is real), simply position yourself as a search fund. You'll own the same business, but all of a sudden you're the general partner of a small investment vehicle as opposed to pizza boy.

On the comment that I may be painting too rosy a picture of a private market investing career, that's fair. One memory that stands out is getting pushback once in a thread here about living expenses, that "no one even on the megafund route is spending $15k/month on an apartment".

I think it's imperative to identify your own biases. I took some risks very early on and they worked out for me, I'm lucky. So the guys I'm around, the deals I now work on, the way I refer to income and spend ... is all colored by that. I'm guilty, and I could be more careful in how I describe things that really are outliers.

Great comment.

I am permanently behind on PMs, it's not personal.

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Feb 26, 2019 - 5:46pm

The response above is correct. Your uncle has also already done the hard part for you. Take what he's built and scale the ever-living fuck out of it until you can afford to hire decent management...then buy more businesses. EZ.

Feb 26, 2019 - 6:05pm

He started the business from scratch and had to learn the ins and outs without any guidance. As a result, I'm sure he wasted some time and energy.

In my case, he's giving me an established business that has been mostly consistent for several years now. Even though there are never any guarantees, his business made it through the 08' recession without even noticing (people still gotta eat, and who doesn't like pizza, especially from a neighborhood joint?).

Since my uncle's an older guy, there's a bunch of little things that I can do to spruce up the business. For example, setting up a web site with online ordering. He spends virtually nothing on advertising/marketing, it's been word of mouth all this time. I've been to the store twice in my life, not recently, so I'm sure there's more that can be done.

Feb 26, 2019 - 6:22pm

How old are you? I get the tricky spot that you're in. Truthfully, even though it's unsexy, if you could make 200-250k in Philly, you'd be a king in Philly. Sure being the owner of a pizza shop or chain of pizza shops isn't that exciting, but in your early 20s or so, that's actually pretty awesome.

Running a simple COL calculation, $250k in Philly is ~$525k in NYC. Given your non ivy type of background, getting into and succeeding at a Megafund will be a long shot. Even if you found a spot at a good MM shop in NYC, you're probably years away from pulling in $500k+ all-in, and that's if you can:

  1. Break into PE. While a few looks from good firms is nice, I think you'll find it's hard to close on those ops, especially if you're not coming from a blue chip background.
  2. Be successful enough to make it to a ~VP level, so at least 4/5 years out.
  3. Be the best in your Associate class so you don't get 2 and outed

With that being said, you'll likely have less upside both with the pizza shop and the lifestyle. Maybe the shop expands and you make a little more money, but sounds like it's unlikely you're going to be making millions the way you could potentially do in PE/Banking. You also don't get the experience or learning that you'd get in PE. You'd still get great operating experience, but PE and the operating experience associated with it has its own cache, which is transferrable.

If you're young, I'd probably take the Pizza shop deal, give yourself a few years to see what happens and worst case, you go back to B school after, you'd have money saved and a unique story. From there you could get into banking or maybe even some type of retail PE. Plus you'll have run a business and you'll still be young enough to hustle in some major city if you want that experience.

If you're older(late 20s and older) it kind of depends on how close you are to settling down and where you want to settle. Do you care about living in a big city? Do you really want to try your hand at PE? While it will be a good experience, there's a relatively high likelihood you'll never make it to the point where you're making millions a year. At least, not without 10+ years of grinding away on deals, travel, missed family events, cancelled vacations, etc.

You're in a good spot, I'm sure lots of mid-level PE guys and bankers would take the deal you have, but they've also experienced the highs and lows of high finance and some don't want to stay on that path.

My tldr gut feeling is to buy the pizza shop and try it out for a few years. If not, let me know what your uncle's phone number is :)

Feb 27, 2019 - 9:32am

Be the pizza man, the experience you gain might be something unrivaled by the typical PE role assuming that you can just get it. There is nothing like a sure thing, its in front of you with family support. If you fail you still learn and make some money in the meantime and then you apply to UPenn, or whatever other business school you like and make the transition then if you want. Good luck with your decision, quite an interesting dilemma.

Feb 27, 2019 - 9:49am

If you think the pizza shop will continue to bring stable free cash flow growth into the future, I would take that route. Save as much money as possible for a few years then start buying small multi-housing properties. This is a unique opportunity for you to save serious dough - $500k can buy you over $1.5m in properties and you can hire a GM to run the pizza op, boom mailbox money.

Feb 27, 2019 - 5:39pm

Its so fire. I always swing through Old Forge on my way to visit family in the Lehigh Valley.

Feb 27, 2019 - 2:09pm

I think you need to evaluate the product. Do you think it's good enough to expand to more locations? Or is it just a comfortable career selling pizza locally.

Can you reinvent the product? Can you become the regional brand name? Places like Portillos have sold to pe at $2 billion. So high exits in this space do exit.

Feb 27, 2019 - 2:15pm

your points aren't wrong, but comparing to Portillos is ridiculous. Portillos is a fucking unicorn (above and beyond the VC "unicorn").

Thanks, now I want a Combo sandwich

twitter: @CorpFin_Guy
Feb 27, 2019 - 2:31pm

A few years ago I met some guys that did the traditional IB/PE Route and bought a group of Burger Kings like 5-6 of them, if I recall. I re met them recently, and they now own over 100 Burgers Kings. I don't see why you wouldn't be able to do something similar with pizza shops.

I did PE for about 2 years and I truly believe that most of what I have learned can be learned through reading / talking to people / having good mentors without actually working in PE. Anyways, I think you have a hard choice to make, but I believe both options are very viable, but doing PE 1-2 years before does give you some downside protection if ever you want to re-enter the job market.

Feb 27, 2019 - 5:05pm

This is along the lines of what I was thinking. Even though it's not a sexy business, I think it's a good platform to start building wealth. After accumulating a sizeable amount of cash, I can solicit other investors and try starting a formal PE firm or a search fund.

If you think about it, there are more PE firms than we might think; most of them are just really tiny or regional. Obviously, we hear about Blackstone and Carlyle, but never about some random PE shop in Cleveland (and yes they do exist). Surprisingly, MDCP in Chicago is the largest PE firm in the entire Midwest, and it's only UMM.

Feb 27, 2019 - 2:57pm

Very interesting thread. I can share some thoughts on the entrepreneurial side. Key highlights are:

  1. You get to build what you want and are responsible for success or failure.
  2. You need to know what kind of person you are. No excuses for failure. The bank doesn't care why you can't make payments. You need to be the type of person who can battle through just about anything in order to be successful.
  3. There are no road maps (minus the franchisee route). You decide how to grow, if to grow, when to grow, where to grow. (I'd suggest finding a mentor who's been there done that - but even then, you may be a different sole)
  4. The RE in many of these shops is worth more than the business. That's a very valuable asset. Buddy of mine owns a BBQ joint (6 locations). The RE is worth approx 5M and is owned in a separate Corp so he could sell the RE and keep the biz or vice versa.

That's it for now, got to pick up my daughter from school (yes there is flexibility).

Feb 27, 2019 - 4:54pm

this is one of the more interesting discussions i've seen in awhile, glad the wso community is so helpful! best of luck with your decision

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Feb 27, 2019 - 5:15pm

To finish my thought from above, probably the most important thing to ponder is being brutally honest with yourself and answering these questions:

  1. What do I want out of life? (and what's the best way to get there?)
  2. What type of person am I? Am I wired to go it alone or would I prefer a corporate environment / structure / status?

Generally speaking, the guy who wants to own/ operate a pizza joint and perhaps build it into an empire is not the same cat who wants to climb the corp ladder and become a principal of a prestigious firm. Even if the money was identical, you'll get there a very different way. Your personal self worth (which is important because how you feel about what you're doing will be a positive or negative driver) will be tied to this. These are two very different scenarios on many levels. Hard to imagine one guy feeling equally excited about both.

Regarding an upstream comment about hours, my experience in the entrepreneur path is it's 24/7/365. You may not be working all the time but you'll be thinking about it all the time, especially in the early yrs (If you're trying to build something). I literally make no distinction between my work and private time. Work isn't a place I go, it's a thing I do to move stuff through the pipeline.

Feb 28, 2019 - 1:30am

Commenting to follow discussion.

Was in a similar situation last year, except I had already started a PE gig when I decided to pursue the small business owner path. Similar size family business, which I let run as it is and use the cash flows to search for another business to acquire with leverage (no luck yet). The goal is to create a Holdco with a portfolio of 3-4 SME businesses over time.

Good luck

Feb 28, 2019 - 11:27pm

Yeah no worries, I left the PE job, 7 months in, due to circumstances where I had to make the choice immediately. Way too early to leave for getting anything substantial out of it, but not regretting it as this opportunity would not present itself again as it was.

Always had the goal of being an entrepreneur through something like this, which is the main reason I went for PE in the first place.

Financially, no clue. Not US based so the PE comp is somewhat less in the LMM/MM market I guess, but tough to beat anyway no matter what you do.
It can all go to shit one day, but if even moderately successful over 20 years or so, this approach should turn out okay + there is the benefit of doing what I personally want to do.

May 22, 2019 - 3:10pm

That's what i'm trying to start too, are you focusing on one industry or whatever good businesses you can get your hands on?

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Feb 28, 2019 - 11:00am

For those who've done this successfully, i.e. built a portfolio of 2-3 SME businesses, how did you overcome the issue of finding the right people to run your business. This to me was the toughest thing to do while working for a small fund that did exactly this. We had to go through several CEOs/general managers before deciding on one. Finding someone who cares for every little detail the way you do is in IMO the toughest thing to do while managing SME businesses. If all your energy is spent on being on site 24x7 , it is going to be difficult to expand/search for other businesses.

Curious to hear peoples thoughts.

Let thine own self be true
  • 2
Feb 28, 2019 - 11:31pm

In regards to finding the right person, this is by far the toughest part of it all.
Doing it as an entrepreneur vs. a small PE shop, there is the option to run a newly acquired small business yourself for a few years and over time find the right person to replace you, and then move on. Difficult in any case, and agree with Armhoo1.

Mar 1, 2019 - 7:06am

You won't find "perfect", but you need "good enough". It's an important topic. Too many entrepreneurs are these rugged individualists that think only they can do X and that kills them. No one will ever do it just like you, Just the way you want, etc. but there are competent people out there that can have "owner mentality" if treated properly (including pay). It's about leveraging yourself. Otherwise you're stuck being an operator which essentially is a job (and maybe not a good one, certainly not the reason you got the whole thing started).

Read The Emyth - Why Most Small Businesses Fail by Gerber. Quick read, fascinating story, spot on. Should be required reading for entrepreneurs.

Mar 1, 2019 - 9:39am

APAE has covered this thoroughly, but I'll add something simple that I think sums up the right answer. Life at this point for you is about optionality. The path with the most optionality should always be the clear winner unless you are the rare person that has found your singular purpose in life at a very young age. You even admit it yourself, how marketable would you be after leaving the pizza business? The answer is, not at all. Good luck to you, I hope you choose wisely.

Mar 3, 2019 - 4:40pm

You can always buy a pizza shop. If you do so now, you'll likely never have an opportunity to enter finance like this again.

If you really want to be a small business owner, that's fine. Doing 2-3 years of private equity first will help you set aside a small nest egg to finance the acquisition and will provide strong resume power should you ever decide to do something else.

At your age, work life balance shouldn't be a primary consideration. We're talking 1-2 years, maybe 3 if you know you want to get out. Go, get burned out, save money while you're there (i.e. live your anticipated lifestyle after leaving PE) and then go buy a small business with a smaller financial burden and a good resume backup plan. It will leave the door open to b-school as well (no top b-school is going to admit a pizza shop owner). Whether or not that is a goal now, it might be later. Running a pizza shop is probably going to get boring fast.

Mar 3, 2019 - 5:50pm

I get what you're saying, but I think you're missing the point. The intent isn't to be a pizza maker for the rest of my professional career. It would just be a foot in the door. Unlike a conventional job, I could use financial leverage to grow the business from one shop to multiple (just like PE). Its a strategy that could back-fire, but its not like everyone in PE will turn out to be the next Leon Black or Mitt Romney. As a matter of fact, the most famous PE investors are outliers in that they were the industry's pioneers. That can't happen again obviously, because the industry is already mature at this point. Also, the future of PE isn't a solid as it use to be. Investors are balking at high fees. Certain institutional investors are going in-house. Some are demanding to be co-investors instead of LPs. Family offices are rapidly becoming aggressive PE competitors. And all of this is going on right a bull market. What happens when the economy slows down and there's a pull back? The hedge fund industry is already getting screwed, so its not a stretch that PE could face its own headwinds. After all, hedge funds and private equity are the same asset class.

With respect to my uncle's business, it won't be possible to acquire an asset with only 5-10% equity (with a seller note), reasonable financing terms (again, thanks to seller note), and not have to worry about material omissions or exaggerations during due diligence. Plus, the business has a proven track record, untapped potential, and is an unsexy business. That last part is an asset as far as I'm concerned, because the less sexy a business is, the less attention it gets from competitors. At the end of the day, I don't care if its not a sexy business, as long as its lucrative (and legal). And it doesn't hurt that its logically recession proof.

The egotistical side of me is saying to go the PE route, just to prove that I can keep up in the rat race. However the cunning side of me is saying to think outside the box and go against the grain. In either case, there will be trade offs, so maybe I should have been more attentive when learning about Game Theory lol.

Mar 4, 2019 - 11:53am

A piece of advice at it seems you are pretty convinced to throw caution to the wind and go for it in Pizza land - treat your uncle as if he were a stranger in this. Your line about 'not having to worry about material omissions or exaggerations' scares me.

Do the full due diligence on financials, get comps of other shops for sale (or have sold, there's plenty of websites) and do the market research on all of the competitors out there, etc. That doesn't mean he is a crook - but you need to have some objective evaluation of the numbers and the whole business case. You may have already done this, and if so, great! Also - are you leasing the space or does he (or you eventually) own the building as well?

Mar 8, 2019 - 11:55am

No, I think you're missing the point. If you want to be in a professional career, this is a bad idea. If you want to be a small business owner and are comfortable with the big opportunity cost this entails, this is a good idea.

But a few things to keep in mind.

  1. Your business plan right now, is not a business plan. And if you're seeing big dollars when you see this business and are anticipating massive growth, think twice. This is a mature market, and your uncle has already probably done a lot of the legwork
  2. Your resume will read "Runs a Papa Johns", no matter what size font you write "CEO of Future Pizza Empire" in
  3. Your resume doesn't have anything else on it (internships won't matter anymore) so business school is out, banking is out, consulting is out, basically any finance role will never happen for you
  4. If you ever want to try something else, you have to deal with this complete lack of additional experience. Additionally, I doubt your uncle will take it well if you have a change of heart in 3-4 years and go to sell his business to go back to school or take another job. I assume you've worked through this though. This means it is going to be "pizza or bust" for a long time.
  5. Your comments around lack of competition read like a classroom textbook. Go to Grubhub and type in "pizza". There is no white space in this market.
  6. Growth will come from making better pizza, running a better business operationally, and going door to door dropping fliers/being good at online marketing and discounts/promotions. All three. What do you know about any of this that 50 other pizza shop owners in your city don't?
  7. If the shop hits a bad run of luck, you still need to pay your employees or close your doors. This can happen, can be real, you have no savings, and you have no equity to leverage if that happens. Will your uncle front you if that's the case?
  8. Your time is going to be spent managing minimum wage employees, which is largely getting them to show up to work and not steal from you, and keeping inventory stocked and fresh. Those will be your resume skills. Don't kid yourself on the "just like PE" bit. Is it a late night shop? Be prepared to be on call 7 nights a week when your employees call out of work.

The real issues here have nothing to do with the state of the PE market vs the Pizza market and have everything to do with the opportunity cost of gaining zero professional experience in your early career. You'll learn plenty in return - supervisory experience, the ups and downs of owning a small business, you'll probably know how to make a great pizza. But chances are high that you're vastly limiting opportunities for yourself down the line.

Listen, all this is fine. Lots of people skip out on the rat race for working class jobs. Just be honest with yourself. You're not finding some secret sauce alternative to PE that all the jerks in high finance have missed out on all this time. You're settling for an OK middle class opportunity that fell in your lap at a good price.

Mar 5, 2019 - 3:06pm

Have you considered setting up a strategic option with your uncle that allows you to do PE beforehand as a way to become qualified? Picture this: you work in PE for 2 years, buy in and work with your uncle for 2/3 years as his #2. If you like it, he phases out completely and you run the show. If not, you can sell it for a profit because you have added value (hopefully), and basically run a sell-side deal on a very small scale. Either way, you've gotten PE experience, you've tested the waters as an owner/operator, and you've made money for both you and your uncle. The hardest part will be selling your uncle on the idea, but it's worth a shot.

Mar 9, 2019 - 1:05pm

As a current M7 B School student intent on executing a search funded transaction within the next couple of years after gaining more commercial experience, I have grappled with the similar question of do I continue to l legitimize my professional cred/toolkit or jump right into an entrepreneurial role where I can make a big difference over a couple years.

Should you get a PE role and spend a couple years learning what to look for in good deals, Imagine this deal coming across a future you's desk. Would you still choose this particular business to buy? I'm thinking hard no.

I tend to agree with some of the guidance that preserving your optionality should be prioritized here.
Going the pizza shop route could close many doors whereas going a traditional PE route will at a minimum give you more perspective, If not open the door to many more mentors/LMM industries/deals

Don't pass up an awesome chance to build on your commercial banking foundation and to gain legit credibility as a buyout legend before you limit yourself to only buying pizza shops.

A seller note is pretty key for most ETA transactions anyway and does not make this opportunity unique. Also, I'm sure there is some family pressure. Might be best to take a step back and think about this from an investor standpoint- it's awesome that you have an opportunity to buy a business here but given your entrepreneurial chops, there will be others that look good to you down the road. The real hurdle I think you'll have to overcome in the future, if you go the pizza shop route, is not having the industry cred or connections to line up more complex investment dollars (especially from career PE guys) when you are ready to buy other businesses.

Mar 9, 2019 - 5:38pm

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