Partnering with PE firms is a great way to exponentially grow a business and reach new heights. However, there are considerations that must be taken into account, before taking PE capital. Fully understanding them will increase chances of success, in the attempt to unlock the full potential of the business. In this article, Jason Mironov, Managing Director at TA Associates, discusses the pros and cons of taking PE capital.
“There isn't a monopoly on good ideas or how to think about business. The best partnerships are the ones where you're learning from each other.” - Jason Mironov
There are a myriad of reasons why people ultimately take money from a private equity firm. Here are the most common ones:
While it is not necessarily considered as a disadvantage, one of the most difficult aspects of partnering with PE firms is the control over the business. Entrepreneurs who have been doing it alone for a while, are not used to having someone who tells them what to do. They need a transitional period to adapt to working with another sponsor who has a vested interest in the business.
According to Jason, partnering with a PE firm is much more capital efficient than venture capitalists. Over at TA, they do not provide primary capital, and only buy secondary shares from shareholders. This process doesn't result in the same kind of dilution as adding cash to the balance sheet.
The key is growing a business to a point where it is profitable, as the valuation gains from doing a secondary transaction with PE firms can be significant.
When handling inbound calls from PE firms, the most important thing to do as the founder is figure out what the real goal is, and why consider partnering with PE firms. After that, filter the PE firms using these steps.