The formulas, tricks and trade secrets of Private Equity

Role Private Equity Bankers Vcs Entrepreneurs

Sample Chapter

How do all of these professions/careers/livelihoods fit together? A quick definition of each is as follows:

  • Private equiteers – active financial investors in established businesses that use gearing to amplify their returns and off-market strategies to grow their portfolio businesses (typically using M&A)
  • Venture capitalists – active financial investors in earlier-stage (growing) businesses that use their contacts, prestige and experience to help businesses commercialise and monetise their concepts
  • Bankers – deal originators and organisers; often the middlemen between PE deals and other M&A activity; mostly in the public arena, though some deals involve private companies exclusively
  • Entrepreneurs – the people with the imagination and the risk appetite to pursue ideas through to concept, then pursue their concept through to commercialisation and profit

I believe there is a closer connection between a) bankers and private equiteers, and b) venture capitalists and entrepreneurs. I say this because private equiteers spend a lot of time sourcing deals, just like bankers. Whereas, venture capitalists spend a lot of time short-listing deals (in which entrepreneurs have approached them) and are therefore much more concerned with the business concept (rather than the sale of capital).

So what’s the implication of this? Well, it potentially explains what the ideal skills are for PE and VC firms. I’m not saying the best private equiteers are bankers, just that their skills are more suited to the role of a private equiteer compared to a venture capitalist. For venture capitalists, I believe it’s more important to have people with real entrepreneurial experience, not only to evaluate deals, but to help commercialise concepts. Comments welcome.

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