Tuesday, December 2, 2008

Lets Talk Private Equity

I recently had the opportunity to interview the chairman of a mid-level private equity firm. Here's what he had to say about private equity, business degrees, and people skills.


Q: How did you find your way into this business?


A: I started my career as an attorney working on numerous types of mergers and acquisitions. I brought one of my clients into a deal based on my judgment and in turn made them about $350 million dollars. Soon after they asked me if I would be interested in starting a private investment firm with them and a few others. The rest as they say is history. We’ve been doing business for fourteen years now.


Q: It was tough to find much information out about your firm prior to our interview. Do you guys keep a pretty low profile?


A: We like to be mysterious. We find that being under the radar we are able to target the specific types of investments we want. When everyone knows about your firm you tend to get hundred of business plans and phone calls a week – most of them are exactly what you are not looking for.


Q: So how do you approach prospective businesses you may want to invest in?


A: Actually we don’t. We have a third party marketing firm create the initial marketing tools to contact prospective businesses. The reasoning behind this is that the marketing firm knows how to make us stand out from the crowd. If we just sent a letter out chances are it would get thrown away.


Q: How does communication play a role in what you do?


A: Communication is one of the most important aspects of this business. When we’re involved in a deal with a business and we need to find very specific people or resources, we are on the phones networking with everyone we know to find what we need. The interpersonal skills are invaluable in this business. We are a small firm so our ability to leverage our contacts and networking to find what we need is imperative.


Q: Leveraging resources is so important in this business. As a small firm, how are you guys competing with other firms how have so much more at their disposal?


A: We started a fund a few years back. We have social events for members to interact as peers and get involved. The events are huge for networking. People know what we’re investing in and since they have a stake they start sending us referrals for top-tier finance and management professionals we otherwise wouldn’t have known about. Since everyone has a stake in the investments people are eager to give us names and numbers. It makes getting your foot in the door that much easier. I can call a CEO and set a meeting. No gatekeepers, no voicemails.


Q: How do you primarily communicate with your team members and prospects?


A: I love email. While we do have a team, most of us are involved in specific things. One person usually stays somewhat involved as a back up person. Usually we keep each other informed primarily through email.


Q: One of the main documents you are giving me as a writing sample is the Letter of Intent. Can you tell me a little more about it?


A: The letter of intent is what we send businesses we are seriously interested in working with. It’s essentially a loose contract that formally states that both parties are interested in conducting business with each other. It’s very wordy and there is a reason for that. If we begin to work with a company and things go wrong before we commit [financially] we can get out of the contract. It’s important to build a back-door into everything. Sometimes things are not what they seem going into something.


Q: You graduated from Harvard Law School. Looking back, has a brand name like Harvard given you opportunities that other schools could not? Does the School make or break your options?


A: I’ve worked with people from all over that have been to top law schools and average law schools. Typically the person either has it or they don’t. The law school you go to doesn’t guarantee anything. I will say that going to Harvard provided me with excellent connections. All in all, going to a top school just makes it easier to get where you want to go.


Q: What’s some sound advice you would give to a business student who is on their way to graduating?


A: Two things come to mind. The first is to make sure you are very familiar with balance sheets and have a good financial background. A lot of people forget the basics. Don’t forget that stuff. Secondly, get solid experience. I can not count how many highly intelligent kids come out of top business schools with MBA’s but have no real experience.