Author: Gerald O'Dwyer

Professionalizing Private Equity: Unleashing the Power of Optionality in Your PE Career

Written by: Gerald O’Dwyer the PE Guru

 

Private Equity (PE) is not merely an industry, but a profession. Just like a doctor invests in medical school or an attorney pours resources into law school to advance their careers, PE professionals must make similar investments. This forward-thinking approach is the key to unlocking the immense financial potential that a role as a CEO within a PE portfolio company offers, which often significantly exceeds the gains of conventional W2 roles. 

 

For perspective, consider a CEO owning a 10% equity stake in a lower middle-market company valued at $100 million. Should the company’s valuation remain static upon exit, the CEO could find themselves $10 million richer. Compared to an executive in a high-paying W2 role, who may earn a $500,000 annual salary plus a 30% bonus, it becomes abundantly clear that the PE path holds a vast financial advantage. 

 

Beyond the pecuniary considerations, the PE model creates an environment in which the CEO’s objectives align with those of the PE firm. This synergy fosters a professional atmosphere where the CEO is incentivized to enhance the company’s value, understanding that their financial reward scales with the company’s success. 

 

 

Investing in Your PE Career: Creating Networks, Building Personal Brands, and Harnessing Optionality 

 

Rather than passively awaiting executives, PE firms are on the hunt for potential partners. These dynamic demands that executives proactively approach PE firms, employing a voice-of-the-customer strategy to meet these firms’ requirements. 

 

Building a robust PE funnel and a compelling personal brand forms the cornerstone of this initiative. Given that most executives are only familiar with a handful of PE firms, and considering a typical PE firm concludes just a couple of platform deals annually, expanding your network becomes an essential part of your professional development. 

 

Optionality is the crux of this investment. The broader your PE network, the more opportunities and options you have at your disposal. This wide spectrum of choices gives you the flexibility to select roles, industries, and partnerships that align with your aspirations and skills, increasing your likelihood of finding the right fit. 

 

 

Here’s a strategic roadmap to maximize your chances of securing a high-return board or C-suite position with equity: 

 

1. Develop a Deal Thesis:

 

Leverage your industry knowledge to create a powerful deal thesis. This serves as an actionable blueprint for potential portfolio companies and a persuasive pitch to PE firms. 

 

2. Engage in Conferences:

 

Allocate between $10,000 – $20,000 per year to attend PE conferences. Just as a scholar attends symposiums to expand their knowledge and network, so too should you partake in these professional gatherings. BlackmoreConnects can even facilitate your inaugural conference visit. 

 

3. Construct a Portfolio Company Database:

 

Assemble a list of at least 200 PE-owned portfolio companies that match your deal thesis. Tools like www.pitchbook.com, www.cyndx.com, and www.sourcescrub.com can help streamline this process. Think of this as a market research exercise, providing you with invaluable insights into the strategies and mental models of PE firms. 

 

4. Establish Connections with PE Executives:

 

Identify decision-making board members within each portfolio company. Engage these key individuals using your deal thesis as the conversation opener. 

 

5. Master the PE Lexicon:

 

As any professional would, invest in your ongoing education by learning the PE dialect. Consider classes from institutions like ACG, Wharton, Harvard, AMAAonline, or BlackmoreConnects. Allocate a substantial budget to attend PE Masterclasses – much like a pilot would for their flight training. 

 

 

 

The Payback Model and Optionality 

 

Think of your $20,000 annual investment over five years (amounting to $100,000 in total) for conferences and education as a tuition fee for your PE profession. Even after this investment, your net payout in our example scenario still reaches a substantial $9.9 million. 

 

The true value, however, lies in the principle of optionality. Imagine attending a full conference with 25 new PE firms. Collectively, these firms own a multitude of companies and are scouting hundreds, if not thousands, of potential acquisitions. This interaction generates a vast pool of opportunities, much like a tree spreading its roots to access more nutrients. 

 

The objective is to meet as many PE firms as possible. Each connection expands your horizons, opening doors to PE board positions, consulting gigs, potential deal closures, and valuable insights into the PE world. You’re not merely building a network; you’re creating a wealth of options, akin to a stock investor diversifying their portfolio. And all this for an annual investment of roughly $10,000. 

 

Embracing PE as a profession requires a significant upfront investment, strategic thinking, and patience, much like any other profession. But when you factor in the potential returns, career satisfaction, and the boundless options available, it’s evident that this investment is well worth it.