Private Equity Basics

𝐏𝐫𝐢𝐯𝐚𝐭𝐞 𝐓𝐡𝐨𝐮𝐠𝐡𝐭𝐬 𝐅𝐫𝐨𝐦 𝐌𝐲 𝐃𝐞𝐬𝐤……………. #36 𝐒𝐨 𝐘𝐨𝐮’𝐫𝐞 𝐁𝐚𝐜𝐤𝐞𝐝 𝐛𝐲 𝐚 𝐏𝐄 𝐅𝐮𝐧𝐝. 𝐍𝐨𝐰 𝐖𝐡𝐚𝐭? One stat always stops people cold: somewhere between 50% and 70% of portfolio company CEOs are replaced during the hold period. That speaks volumes about how unforgiving the job can be. Private equity brings capital, but also big expectations. The bar is high, timelines are tight, and value creation can’t wait. For first-time CEOs, the learning curve is steep. Here’s how to stay ahead of it. 1. 𝐀𝐥𝐢𝐠𝐧 𝐨𝐧 𝐭𝐡𝐞 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐭𝐡𝐞𝐬𝐢𝐬. Zero in on the 3–5 value creation levers that will drive a 3x+ MOIC or double enterprise value. Make sure they dominate the board agenda, and get the resources to match. Agree on clear KPIs and don’t let them drift. 2. 𝐁𝐞 𝐭𝐫𝐚𝐧𝐬𝐩𝐚𝐫𝐞𝐧𝐭. 𝐍𝐨 𝐬𝐮𝐫𝐩𝐫𝐢𝐬𝐞𝐬. Open information flows build trust. Be honest about risks, share challenges 𝘸𝘪𝘵𝘩 solutions. Anticipate the fund’s appetite for updates; proactive communication beats reactive damage control. Keeping sponsors out of the loop is a fast path to friction. 3. 𝐎𝐩𝐞𝐫𝐚𝐭𝐞 𝐰𝐢𝐭𝐡 𝐝𝐢𝐬𝐜𝐢𝐩𝐥𝐢𝐧𝐞. Set the cadence. Define who’s doing what, and when. Designate a primary fund liaison (often the CFO) to prevent a firehose of requests. Pre-wire board members. No one likes surprises, least of all PE investors. 4. 𝐒𝐭𝐚𝐟𝐟 𝐟𝐨𝐫 𝐭𝐡𝐞 𝐬𝐩𝐨𝐧𝐬𝐨𝐫. You may be private, but the reporting intensity is real. Plan for incremental FP&A FTEs to handle the data load. Automate where possible. Templates are your friend when the heat’s on. 5. 𝐔𝐬𝐞 𝐭𝐡𝐞 𝐞𝐜𝐨𝐬𝐲𝐬𝐭𝐞𝐦. Your fund likely has ops partners, advisors, and peer forums—use them. They speak fluent PE 𝘢𝘯𝘥 operations. They’ve seen the movie before, and their guidance can shorten your learning curve. 6. 𝐔𝐩𝐠𝐫𝐚𝐝𝐞 𝐭𝐡𝐞 𝐛𝐞𝐧𝐜𝐡. Sentimental loyalty to underperformers is a deal killer. Be honest about where talent gaps exist and act early. Execution is everything. 7. 𝐊𝐧𝐨𝐰 𝐲𝐨𝐮𝐫 𝐬𝐩𝐨𝐧𝐬𝐨𝐫. Not all PE firms behave the same. Some are hands-on, others more laissez-faire. Understand their style, decision cadence, and politics. Talk to other portfolio companies. Ask questions. Build the relationship. Private equity is high-octane. But with alignment, transparency, and a clear operating model, portfolio company CEOs and management teams can turn that pressure into performance. #privateequity #privatemarkets #privatethoughtsfrommydesk

A growing percentage of private-equity exits is coming from sales to continuation vehicles, funds that allow firms to continue to own and manage portfolio companies while giving their investors a chance to cash out. These funds rose to prominence as a tool for “zombie funds” to restructure. Managers later realized they could use continuation funds to hold onto their best companies, reaping more of the returns, instead of selling them to a competitor and allowing them to do so. Amid high interest rates and uncertainty over tariffs, firms are increasingly using them as a tool to give investors desperately needed cash while avoiding selling in a tough market. https://lnkd.in/ee_TKAPy

This report was glued to my hip during my Private Equity days: it's a sample Quality of Earnings (QofE) Report you would find in a M&A or PE transaction... First off, thank you to Patrick McMillan and Jon Allen of Amplēo who did an amazing job putting this together. 💡𝗪𝗵𝗮𝘁'𝘀 𝗮 𝗤𝗼𝗳𝗘? A detailed and independent analysis of a company's financial performance, often completed in the due diligence phase. 💡𝗪𝗵𝘆 𝗶𝘀 𝗶𝘁 𝗗𝗼𝗻𝗲 𝗜𝗻𝗱𝗲𝗽𝗲𝗻𝗱𝗲𝗻𝘁𝗹𝘆? During a M&A transaction, the buyer and seller are inherently at odds. The Seller wants its Adjusted EBITDA as high as possible to obtain a high valuation, whereas the Buyer wants the Adjusted EBITDA as reasonable as possible to pay a fair price. So, an independent QofE firm is often brought in to complete this analysis to help Buyer and Seller agree on the true, normalized profitability of the company. 💡𝗪𝗵𝗼 𝗣𝗮𝘆𝘀 𝗳𝗼𝗿 𝗜𝘁? It's actually quite common to see QofEs performed on both the "buyside" and the "sell side," so you may see two reports as part of the transaction. While it may seem like this would put things further at odds, it actually serves as a nice portfolio of support for arriving at a normalized profitability figure, with each side getting to weigh in through an independent voice. 💡𝗠𝘆 𝗙𝗮𝘃𝗼𝗿𝗶𝘁𝗲 𝗣𝗮𝗴𝗲𝘀: - p. 13-15, Building Adjusted EBITDA Love it or hate it, the Adjusted EBITDA analysis is designed to portray a picture of normalized profitability on which to base a valuation. - p. 30, Proof of Cash Helps provide insight into whether reported Revenues are consistent wish cash receipts. - p. 34-35, Working Capital Helps see Working Capital trends over time and provide a starting point for the "Working Capital Target" - p. 42-45, EBITDA Adjustments by Month 💡𝗛𝗼𝘄 𝗶𝘁 𝗔𝗳𝗳𝗲𝗰𝘁𝘀 𝗧𝗵𝗲 𝗠𝗼𝗱𝗲𝗹 If you're a Financial Modeler, these schedules should appear in your model exactly as you see them here. The QofE becomes the "source of truth" during diligence and your financial model should match it exactly. 💡𝗭𝗼𝗼𝗺𝗶𝗻𝗴 𝗢𝘂𝘁 A document like this is a treasure trove of financial information and helps you see behind-the-curtain when it comes to assessing the financial health of a "Target Company" during an acquisition. Thanks again to Amplēo for putting this together. I hope you find it helpful. ⚡𝙈𝙮 𝙀𝙡𝙚𝙫𝙖𝙩𝙤𝙧 𝙋𝙞𝙩𝙘𝙝: —————————— Social media is great, but only scratches the surface... If you want to go in-depth in this topic, then check out my free email series the Financial Modeling Educator, which explores the intersection of Financial Modeling, FP&A, and Private Equity to help make you a better Financial Modeler. Link in comments below ↓

I just spoke to a 25-year-old founding AE who got shafted with their equity package. There was a liquidity event and he missed out on ~$100,000 by not understanding how startup equity works. Here’s my TL;DR on what you need to know—and 5 important questions to ask before you take an early-stage role: 1. “What percentage of the company do these shares represent, fully diluted?” If your friend has 10k shares at her similar stage startup, that means nothing without knowing more information. Get the ownership percentage or total shares outstanding, not just the number of options. It's not apples to apples. 2. “What’s the 409A valuation and my strike price?” Your strike price determines how much you’ll pay to exercise your shares. It’s based on the 409A (not the last round valuation). A high strike = less upside. Ask when the 409A was last done and when the next one is coming. 3. “What’s the vesting schedule and is there any acceleration?” Standard is 4 years with a 1-year cliff. Meaning you get 1/4th of your equity on your 1 year anniversary and then the remaining 75% in monthly increments over the next 3 years you at at the company. If you leave or get let go before 12 months, you walk away with nothing. Ask about single trigger or double trigger acceleration in case of acquisition. Simply put, if you get acquired (single) or acquired and then fired (double), will your stock get accelerated? If you are junior, you may not have much negotiating power but always ask! 4. “What’s the exercise window after I leave?” *MOST IMPORTANT* Most companies give you 90 days to exercise after leaving. If you don’t have the cash (and the required tax bill you need to pay if the company grows really fast), you lose your shares. This happens more often than you think…. More progressive companies offer extended windows (1–10 years). 5. “Is this offer competitive?” Talk to recruiters. Ask friends. Check tools like Pave or Levels(.)fyi. Founding AE at a Seed or Series A company? Your equity should reflect the risk you’re taking. More importantly, it shows how the leadership team VALUES SALES as a function. BOTTOM LINE My advice after working for 3 venture backed companies, spending a year in venture, and then launching a company who raised funding: Good founders are good sales people. Their job is to get you excited about the opportunity. Don’t let them convince you the equity is worth it. You have to do your own research. And ask the right questions. Realistically, your equity is unlikely to be worth a lot. So don’t weight is as a primary reason to join a startup The biggest benefit of joining an early stage company is career acceleration, more ownership over major parts of a business, and the creativity to move fast. Have any questions about startup equity for salespeople? AMA in the comments below 👇

M&A deals don’t fail because of strategy. They fail because of people. Private equity firms love a "Buy & Build" strategy—acquiring multiple brands, driving synergies, and scaling fast. On paper, it looks like a winning formula. But in reality? Many of these deals fall apart. And the reason isn’t the financial model—it’s the leadership model. The Real Risk in FMCG M&A: Leadership Misalignment When PE firms acquire consumer brands, they focus on: ✅ Cost-cutting opportunities ✅ Supply chain efficiencies ✅ Market expansion But what many overlook is whether they have the right leadership to: - Integrating multiple organizations means uniting leadership styles, work cultures, and decision-making approaches. Many execs who thrived in founder-led or corporate environments struggle in a PE-backed world. - PE investors want fast, high-ROI execution. But not every CPG leader is built for that kind of pressure. Some are great at maintaining brands—not scaling them. - The “Buy & Build” model often involves shifting brands from legacy mindsets to high-performance, high-expectation environments. Without leaders who can navigate that shift, things fall apart fast. Many FMCG executives come from corporate backgrounds—structured environments with long decision cycles. PE-backed brands move differently. They require: ⚡ Speed over process – There’s no time for bureaucracy; execution matters more than consensus. ⚡ Ownership mentality – It’s not about protecting a department—it’s about maximizing valuation pre-exit. ⚡ Financial fluency – PE investors expect executives to be laser-focused on EBITDA, margins, and cost synergies. Not every FMCG leader has that mindset. Hiring from within traditional FMCG without assessing PE-readiness is a costly mistake. IMO, PE firms should: -Hire for agility, not just experience – The best leaders in PE-backed brands aren’t just industry veterans. They’re operators who can move fast, make tough calls, and execute under pressure. -Assess leadership for integration skills – The first 12 months post-acquisition are critical. Leaders must be able to unite teams, align cultures, and minimize disruption. -Prioritize commercial & financial acumen – PE leadership isn’t just about brand-building. It’s about profitable, scalable growth. Executives who only focus on marketing or product without understanding financial impact won’t last. -Think beyond "who ran a big brand" – Just because a leader ran a $1B consumer brand doesn’t mean they can thrive in a high-stakes PE-backed environment. Leadership Determines Whether M&A Works—or Fails. If a PE firm’s leadership hiring strategy is an afterthought, the exit strategy is at risk. The smartest investors prioritize leadership alignment as much as financial modeling. Because at the end of the day? Great strategy means nothing without the right people to execute it. #PrivateEquity #MergersAndAcquisitions

🔎 What actually sets standout LPs, VCs, and Private Equity managers apart in today’s market? The latest conversation with Patrick Miller from J.P. Morgan Asset Management offered some grounded insights—here’s what’s shaping investment strategy in 2025: 🤝 Long-Term Partnerships - Venture capital isn’t about trading in and out. The most effective LPs and GPs focus on stability and building relationships that last through market cycles. Founders like those behind Airbnb and Uber launched in volatile times—steady hands matter. 📈 Institutional Experience - Teams with decades of experience bring perspective and best practices, especially during downturns. Patrick’s team, for example, sits on over 215 boards and has invested across multiple cycles, helping GPs navigate transitions and growth. 🌐 Network & Introductions - It’s not just about capital. The right introductions—to LPs, founders, and industry leaders—can unlock unique opportunities and differentiated access. A strong network is often the edge in winning top deals. ⚖️ Fund Size & Ownership - There’s nuance in fund structure: smaller funds can deliver outsized returns through ownership concentration, while larger funds may rely on a higher hit rate. Both models have their place, but understanding the math behind them is crucial. 🤖 AI’s Impact - 71% of Q1 venture dollars went to AI. Early-stage AI startups are scaling faster and more efficiently, sometimes reaching profitability before raising later rounds. This shift has second-order effects on the entire capital stack—something every investor should watch. 👥 People Drive Performance - In private equity, sector specialists and proven operators are the key to value creation. The right person can take a company from $10M to $100M+. In both VC and PE, it’s about backing teams with differentiated expertise, networks, or strategies. 🧑💼 Mentorship & Initiative - The best advice for anyone in this space? Find a mentor, show initiative, and create value before you ask for anything in return. Building genuine relationships and returning value on someone’s time is what creates a lasting “viral loop” of opportunity. Curious how these trends will shape the next decade of VC & Private Equity? Share your comments below. #VentureCapital #LPs #Startups #AssetManagement #PrivateEquity #VCs #Investing Link to Podcast in Comments Below 👇

Nobody acquires a business for all cash, out-of-pocket at closing. This is a common misconception for a lot of people. They believe that to acquire a business, they need to be able to pay 100% of the purchase price out of their own funds. Even intermediaries perpetuate this misconception by requesting proof of funds from potential buyers (I talked to a guy last week who was denied a CIM because of this). The bottom line is that even if you have the cash available to fund the entire purchase price, it is not smart to fund the transaction this way. In fact, if I were on the sell side, I might question whether you would be an ideal buyer for my business if that were your plan. Let’s look at a very simple transaction: the business has $500k in earnings, and we are buying it at a 3x multiple ($1.5M). All Cash Deal: You don’t have any debt to service, so it takes three years to break even on your $1.5M investment. Leveraged Deal: You put $150k of your $1.5M in, and the remaining $1.35M is financed. Your debt service is about $225k annually, so you have $275k of earnings after covering that. Not only do you recoup your $150k investment in the first year, but you also get an 80% return. With a leveraged transaction, you have cash available to invest in the acquired business because you didn’t empty your bank account to fund the purchase. This can be used for equipment upgrades, hiring needed talent, expanding marketing and sales, and other investments to improve earnings. From both the perspective of an investor and an entrepreneur, an all-cash deal doesn’t make a lot of sense. The return on investment is not as good, and you limit your available capital that can be used for future growth. There is a reason why professional investors at private equity companies and large companies rarely fund the entire purchase price of an acquisition from their own capital. 

New research from Suraj Srinivasan and Brian Baik at Harvard Business School sheds light on how private equity (PE) firms are leveraging digital transformation to drive value in their portfolio companies. This shift represents a significant evolution in PE strategy. Key Findings: ▶ PE-backed firms increased IT budgets by 14% and AI-related job postings by nearly 4% ▶ These investments led to an 11% increase in hiring and a 9% boost in sales PE firms with tech expertise drive more aggressive digital transformation ▶ Growth equity deals show stronger increases in digital investments compared to buyouts ▶ Digital investments are associated with increased sales growth, employee growth, and innovation (measured by patent filings) Why This Matters: ▶ Paradigm Shift: PE firms are moving beyond traditional cost-cutting to embrace technology-driven growth strategies. ▶ Competitive Edge: Digital investments are becoming crucial for portfolio companies to stay ahead in rapidly evolving markets. ▶ Long-term Value: Despite high upfront costs, digital transformation is proving to be a powerful tool for sustainable growth and innovation. ▶ Investor Expertise: PE firms with prior tech investment experience and in-house digital expertise are leading this transformation. ▶ Industry-Wide Impact: Both IT and non-IT portfolio companies are seeing significant increases in digital investments. As the PE landscape evolves, firms that can effectively leverage digital technologies will likely see stronger returns and more resilient portfolio companies. For professionals in PE and adjacent fields, developing digital expertise is no longer optional—it's essential. What's your take on this trend? How is your organization approaching digital transformation in its investment strategy? https://lnkd.in/eFp9793A #PrivateEquity #DigitalTransformation #ValueCreation #Innovation

The Key to Success in Current PE Investments: Operational Effectiveness In today's market, Private Equity (PE) investments are facing unique challenges and opportunities. To make these investments more successful, the question arises: What is the current driving force behind success—financial engineering or operational effectiveness? While financial engineering has its place, it is operational effectiveness that truly stands out in the current market. Why Operational Effectiveness Matters Focus on Financial Metrics Alone Is Insufficient: While traditional PE firms are focused on hiring executives with proven success on improving metrics like EBITDA, revenue growth, and cost-cutting, these are not the sole factors of success, and the wrong hires can be made (ie: resulting in turnover, poor talent development). Talent Development and Management: A vital but often overlooked aspect of operational effectiveness is talent development and management. Talent is the lifeblood of any organization, and the ability to attract, develop, and retain professionals is crucial. A strong team is essential for realizing the full potential of an investment. Especially when the investment timeframe is longer. Leadership Alignment: Success in PE-backed businesses is closely tied to the alignment between executives and sponsors. This starts with recruitment. The executives and sponsors must agree on the profile targeted before the search even begins. Once in the door, this alignment is not limited to financial targets but extends to shared values, goals, and strategic vision. Investment in Talent Throughout the Organization: It's not only the top executives but also the doers and managers who significantly impact the success of an investment. They are on the front lines, implementing strategies and driving day-to-day operations. Focusing on their development and effectiveness is a fundamental aspect of operational excellence. Collaboration with PE Partners As we collaborate with our PE partners, we find that discussions on leadership styles, executive alignment, and workforce planning are central to achieving operational effectiveness. We provide valuable insights and consulting services that span the entire talent spectrum within an organization. Our emphasis is on nurturing a strong and capable workforce, from the top-level executives to the managers and doers on the ground. In conclusion, we are seeing a lot more focus on talent operations and recruiting process improvement within PE firms. Most of our clients are portcos who are not ready for an in-house talent team, but have a focus on improving recruiting and talent operations, and have a focus on not only hiring a high quality executive but also a high performing team to support them. #privateequity #hiring #perecruiting

Private Equity’s growing interest in Professional Services businesses is understandable, given their cash generation, growth potential, and recurring revenue streams. With competition for assets driving valuations to all-time highs, these firms are undeniably attractive investments. However, many investors in recent times have underestimated the complexities that underpin their success and fail to grasp the fundamentals of how these businesses operate, leading to repeated missteps. One common mistake lies in unrealistic expectations around hiring. Investors’ theses often rely on quickly onboarding large numbers of new Partners and achieving immediate profitability. The reality, however, is far more complex. Transferring client relationships at scale is rarely straightforward, and it can take up to two years for a new Partner to fully embed and begin generating consistent revenue. This “talent lag” is frequently underestimated, as is the impact of non-compete clauses, which can create further delays. Another frequent oversight is the failure to assess the operational backbone of a Professional Services firm. The most successful firms excel in areas such as thought leadership, recruitment strategies, cross-selling, and delivering repeatable offerings. These elements are critical to long-term success, yet many investors fail to appreciate or evaluate them effectively during due diligence, focusing instead on surface-level metrics. We also see many ex-tier 1 consulting Partners, now working in Private Equity, making assumptions about “best practices” based on their experiences at larger firms. However, these individuals often overlook the fact that running a Professional Services business requires a completely different skill set. Operational strategy, leadership, and managing the nuances of people-driven businesses demand a broader perspective than what is gained from delivering client work. Professional Services firms present significant opportunities for investors, but success requires a far deeper understanding of their unique dynamics. These are people-centric businesses and, as such, behave in an almost esoteric manner. Investors who truly grasp these nuances are best positioned to unlock the sector’s full potential.