Looking back at the industry over the last decade, we would argue that the firms thriving today are those that embrace entrepreneurial behaviors and evolved to thrive in a new world order.
Tenacity, focus, ability to spot new opportunities where others see disruption, determination to succeed, resilience, ability to learn from experience, discipline. These attributes are the essence of what makes an entrepreneur — their core behaviors. They are also at the heart of the new paradigm for PE.
An opportunistic mindset
PE is adapting well to what has become a more volatile and demanding environment. PE's most successful firms are proving to be far from the financial engineers they are often characterized to be.
Instead, they are demonstrating their entrepreneurial credentials: they are looking for the right opportunities in an uncertain environment, moving into new markets, finding innovative ways of financing deals, seeking out new investment and capital sources, identifying new paths to growth for portfolio companies and taking calculated risks while also maintaining discipline and focus.
The resilience and adaptability of the PE model has come clearly into focus in recent years. Faced with the challenges of a difficult deal-making environment, low growth in developed markets and an increasingly selective and diverse LP base, the entrepreneurship that resides in the industry's best performers has shone through in three key areas:
- Targeting new growth opportunities
- Responding with agility to and anticipating the shifting needs of LPs
- Identifying the sectors and niches with the potential to far outstrip a low-growth environment
Acceptance of risk and potential failure
PE's attitude toward risk is central to its underlying business model. PE investors look for undervalued and underperforming companies, growth companies and even distressed companies — which seek capital that is otherwise difficult to obtain — but have tremendous opportunity for growth and improvement.
As such, PE is responsible for the growth of scores of companies, leading many to successful initial public offerings (IPOs) and selling many others to corporate buyers or other PE buyers — for additional growth opportunities. The industry's focus on building value has been validated and, as such, continues to attract investors to the asset class.
The behaviors around the core
Supporting the appetite for risk and the ability to spot opportunities are the set of core behaviors that drive entrepreneurs. The pioneers of PE founded a new type of investing 30-odd years ago — one that continues to support other entrepreneurs, value creation and growth. They may not all have demonstrated entrepreneurial traits throughout the entire time, but those that are winning today certainly have taken those qualities to heart and now are exhibiting them.
To succeed in today's turbulent times and beyond, firms will need to illustrate these entrepreneurial behaviors across the enterprise:
The DNA of the entrepreneur model