Unlocking entrepreneurial growth through private equity
Private equity and entrepreneurs: can this marriage be saved?
Private equity (PE) firms and entrepreneurs agreed on one thing at World Entrepreneur Of The Year. Their relationships are much like marriages that can have rocky moments. But many pitfalls can be avoided if you enter with your eyes open and communicate with your partner.
Some entrepreneurs have the negative stereotype that, in exchange for giving PE firms 50% or more of their companies, they get interfering, 28-year-old MBAs who demand reams of data, noted Mustafa Abdel-Wadood, partner with The Abraaj Group. He admitted, “We do have to resist the urge to meddle.” But panelists pointed out that, in addition to providing an influx of capital, PE firms can provide useful insights, such as exit strategies that may involve going public.
Pol Vanderhaeghen, former Chairman of Taminco, noted, “PE firms have different skills; they’re not all alike.” For example, he’s found that PE firms help bring a focus on working capital and cash management.
Jeff Silver, Founder and CEO of Coyote Logistics, advised entrepreneurs to “pick well, build trust and choose a PE firm whose approach matches where you are in your company’s life cycle.” Heikki Westerlund, Chairman of the Board for CapMan Plc, said, “One size of PE firm does not fit all.”
He expects that in the future PE firms will expand beyond the traditional model that dictates at least a 50% equity stake and an exit within five years. “For example, I think we’ll see PE firms willing to accept a minority interest,” Westerlund said.
Vanderhaeghen offered one last piece of advice: communicate openly about the need for an eventual exit. “After all, your ‘marriage’ is destined to eventually end in a ‘divorce,’” he quipped, “so make it an amicable one.”
Global Private Equity Leader
Ernst & Young
Partner & Chair of the Management Executive Committee
The Abraaj Group
Founder and Chief Executive Officer
Entrepreneur Of The Year 2011 Midwest (US)
Director on the Board of Directors – former Chairman
Entrepreneur Of The Year 2011 Belgium
Chairman of the Board
Entrepreneur Of The Year Finland 2002-2012 judge