Scaling a PE Firm/Growing Your Investment Team?

Has anyone here built out their own investment team from scratch for their own firm?

This doesn't necessarily have to be specific to private equity but it would be nice. It's an interesting problem we're facing, so I've tried to explain it as best possible.

Basically...I need to start building out my core investment team to grow our available bandwidth to tackle deals as I feel we're missing out on some opportunities because of our team size as we're not constrained by capital at the moment.

In our first year, we tried bringing people on with fairly impressive backgrounds at the partner level. One was an early employee at a huge tech co, another two had done the standard ivy league + PE experience thing, and then a smatering of ex-entrepreneurs.

The tech one didn't really like working that much (wtf?) and was basically unwilling to put the hours in, so we ended things amicably. Weak skill set overall too and too specialized to be useful plus wasn't as interested as learning about the private equity side as I would have thought.

One of the PE guys was amazing, but I think the whole entrepreneurship thing was a little high risk for his liking; to his credit, he did join us and then immediately lose a ton of personal cash on our worst deal ever (lol). I'm still in touch with him though and want to hire him FT once we're big enough to justify it. The other PE guy we were working with basically had a mental breakdown and now I don't know what he's doing, he was also too risk adverse.

The other problem is that the above three were all used to working at large companies when we work with fast growing companies typically doing under $20M in revenue...doing a mix of both growth/vc style deals and traditional IS style PE deals. Due to working with large co's exclusively, they were used to having a ton of resources and being pretty spendy, which isn't really something you have at a startup. Compounding this, their skillset was kind of built out to work with large companies.

As far as the ex-entrepreneurs with "good" exits under their belt. Most turned out to be luckier than smart, and unwilling to work as hard as they should be. I think this is because they had made some money and got lazy. It's quite common with entrepreneurs, and I'm sure you've all seen it when they go to sell their companies. A few I found with good skillsets I can tell won't scale well because they look forfuckingever to scale their companies to anywhere decent.

We were able to find a really good ex-entrepreneur who was willing to sell his business and jump on-board as our CMO, which is great, but also a bit of a WTF that we were even able to hire him. The only problem is that he is VERY marketing focused, so he can't really be involved on the investment side and the side of the business I'm trying to hire out for now specifically is the investment side.

Our first year profit was well into 7 figures so we can certainly afford to go out and hire someone instead of bringing them in as a partner. For reference, our new CMO makes about $350k which is fine because he pays for his own seat. The only problem is that I'm not sure where to recruit from. The guys with careers in ibanking/PE are generally too used to working with large companies which makes their skill set a bad match for us. They also don't really understand how to scale a company, which is a weirdly specific skill set I want the hire to have. I really want someone I can have drop into a company and help with ops too in addition to helping on the investment side.

Culture fit is also a bit of an issue as my partner and I are quite young (mid/late 20s). We both love eating shit, are frugal, and spend pretty much all our time working and that's the culture I want to build this company off of. I don't want some millennial douchebags taking time off to get their karma realigned and I don't want people that aren't willing to go all-in be one of our first few hires, especially if we're giving them some equity exposure (which we did for our CMO).

Any ideas? I've been posting on the usual job boards, plus trying to snipe CFO/COOs from companies that have scaled from low Ms to 8 figures and talking to a ton of entrepreneurs I'm friends with through YPO and EO. I've probably interviewed close to 80 people, all qualified and haven't really found anyone I love enough to hire on long-term and give them the pay package we are offering.

 

m_1, pure crickets, that's where I come in. Any of these useful?

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Hope that helps.

I'm an AI bot trained on the most helpful WSO content across 17+ years.
 

"They also don't really understand how to scale a company, which is a weirdly specific skill set I want the hire to have" - just to understand, do you mean someone that can work with a company to realize their projected growth (would they not already have the capabilities and team resources in place at time of investment) or do you mean someone who can find opportunities beyond what company management sees and help them capture it?

Congrats on the 7-figure profits, quite a feat to pull off if you're working with companies

 

Sorry I should have provided more clarity in OP. I mean someone with a track record of successfully scaling a company quickly and not getting bogged down by things like being short of resources, systems breaking, having to hire quickly, etc...

Keep in mind it's really easy to come into a company with an amazing product doing $1M - $3M a year and then 3x - 5x revenue if you know the industry well and have a proven playbook just by making "basic" best-practices a reality.

The problem though is scaling the rest of the company alongside that. Going from an 8 - 12 person team to 50+ in 2 - 4 months is pretty hard without the right guidance/help and people who haven't lived in that environment or done it before can't really help a port co C-level out if they have not.

And thanks, yes, some big wins early on (luckily).

 
Most Helpful

I have been a part of a PE startup that grew from a core team of 3 to 12 within 2-3 years. Here are some key observations and suggestions, hope they are helpful.

  1. Don't hire at the partner level - people like you and your partner who are passionate about building things from scratch and are in sync will find it hard to build peer relationships with someone who didn't eat shit with you early on. You will always be frustrated at how people aren't acclimating to your style of doing things - and you maybe correct and these people are really lazy or maybe you're just not giving them a chance. Also, having a partner will confirm your biases because "hey look the two of us agree that these people are lazy" will not make it any easier to accept peers into the partnership.

  2. Don't hire bankers/PE types - entrepreneurial people in finance leave early usually or stay long enough to build cash reserves/specific experience etc and then leave. Otherwise PE/Banking attracts some of the most insecure, conforming, and risk averse types who are IMO almost always miss out on potentially great opportunities because they are incapable of passing judgement on a high growth, very erratic setup of a fast growing company. You're being unfair to them if you expect them to be understand and find value in this setup.

  3. Avoid big names - as you said, people who work there are used to alot of things being handed to them and they are always complaining. You need people who are scrappy and resourceful.

My advice is to hire 1-2 young guys who come from MBB/Ibanks but just were too entrepreneurial that they left after their analyst years. Get them mentor them and shape them in accordance with your culture and promote them to the partnership in 1-3 years. You will have a much better working relationship, and they will be working their ass off cause they see the endgame.

Hope that was helpful

“Self-control is strength. Right thought is mastery. Calmness is power. ” - James Allen
 

Search fund types would be a great addition as well. Check searchfunder you can find a pipeline of potential people there.

To be honest, I am not from the US so I will not be the most relevant person to comment on which banks. But i would say the lower you go in size the higher probability that the people will be scrappier cause they wouldn't have big firm resources.

Happy to chat more if you want to bounce specifics.

“Self-control is strength. Right thought is mastery. Calmness is power. ” - James Allen
 
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PM if serious. I am a millennial but I support Donald Trump, love long-hours, and told my roommate that men don't cry when he tore his ACL and MCL. I've also religiously donated 5% of my paycheck (since an intern) to UNICEF.

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