1/ Today, I want to tell you about a little dance I call The PE Hustle...
2/ If you were religious, and marrying someone equally religious was KEY to marriage, you would MENTION IT on the first date. Right?
So, why do so many PE investors waste time on 1-2 months of meetings and calls without asking make or break questions?
I‘ll tell you why...
So, why do so many PE investors waste time on 1-2 months of meetings and calls without asking make or break questions?
I‘ll tell you why...
3/ it all starts with a furtive email...
You get a reach out from some boiler room associate who is fresh out of college, dialing for dollars (emailing address many companies as possible trying to get leads for the firm).
They want to “hop on a call”...
You get a reach out from some boiler room associate who is fresh out of college, dialing for dollars (emailing address many companies as possible trying to get leads for the firm).
They want to “hop on a call”...
3/ The call goes like this:
“We are a $X bil fund”
“founders are former Goldman/Tiger/TPG/KKR”
“We pursue X strategy”
“We differentiate by being:
(Choose 2)
- opportunistic
- longterm
- flexible
- founder aligned
- operational excellence
- track record
- get on a plane
Etc.
“We are a $X bil fund”
“founders are former Goldman/Tiger/TPG/KKR”
“We pursue X strategy”
“We differentiate by being:
(Choose 2)
- opportunistic
- longterm
- flexible
- founder aligned
- operational excellence
- track record
- get on a plane
Etc.
4/ They ask a bunch of questions about your business.
No mention of structure. Value expectations. How they approach an acquisition of a company like yours. They are “very flexible”.
You ask about valuation, etc. The associate tells you that they’ll get back to you on that...
No mention of structure. Value expectations. How they approach an acquisition of a company like yours. They are “very flexible”.
You ask about valuation, etc. The associate tells you that they’ll get back to you on that...
5/ They request a bunch of financial materials which take you days to produce.
The associate does another couple calls with you to ask questions before bringing it to the “Monday morning investment meeting”.
TIME SPENT TO DATE: 8-10 hrs.
This is where the principal comes in!
The associate does another couple calls with you to ask questions before bringing it to the “Monday morning investment meeting”.
TIME SPENT TO DATE: 8-10 hrs.
This is where the principal comes in!
6/ The associate says the principal is interested in meeting you.
You get on 2 or 3 multi-hour calls and repeat everything you just said to the associate.
They want to meet in person (!!!). They’re going to fly across the country to meet you.
You get on 2 or 3 multi-hour calls and repeat everything you just said to the associate.
They want to meet in person (!!!). They’re going to fly across the country to meet you.
7/ The principal asks you to book off a half day to spend with them and sends a big itinerary of all of the information they want to review.
Your accounting team has to build out a data room full of info.
TIME SPENT TO DATE: 2-3 FULL DAYS.
Your accounting team has to build out a data room full of info.
TIME SPENT TO DATE: 2-3 FULL DAYS.
8/ They show up at your office in a suit. If they are REALLY hip and forward thinking, khakis, dress shirt, and Patagonia.
They stand out.
Your team is wondering: who’s the suit? Whispers begin.
They stand out.
Your team is wondering: who’s the suit? Whispers begin.
9/ They grill you on esoteric details of your business for 3-6 hours.
Then, you turn the tables:
“I don’t want an earnout”
“This can be a quick deal right?”
“The team is good, will you leave them alone?”
They offer friendly but unsatisfying answers. They’ll discuss it with..
Then, you turn the tables:
“I don’t want an earnout”
“This can be a quick deal right?”
“The team is good, will you leave them alone?”
They offer friendly but unsatisfying answers. They’ll discuss it with..
10/ THE PARTNERS.
You don’t know it, but until this moment, you have been nothing to the firm.
This deal is a one of 25 deals in a pipeline. A number.
You’re already 1.5 months in, but this is the first time the partners will really hear much about you.
Shit just got real.
You don’t know it, but until this moment, you have been nothing to the firm.
This deal is a one of 25 deals in a pipeline. A number.
You’re already 1.5 months in, but this is the first time the partners will really hear much about you.
Shit just got real.
11/ But something exciting happens.
They send you an offer letter. An “indication of interest” and it blows your fucking mind.
HOLY SHIT. They are offering you on the very high end of what you’d expected.
You’re rich!!! You start figuring out what house you’re going to buy.
They send you an offer letter. An “indication of interest” and it blows your fucking mind.
HOLY SHIT. They are offering you on the very high end of what you’d expected.
You’re rich!!! You start figuring out what house you’re going to buy.
12/ TIME SPENT TO DATE: 12 DAYS
But now, it’s Groundhog Day!!!
The newly looped in partners want to:
1. Hop on a call
2. Ask you all the same questions
3. Grill you like grilled cheese
4. Spend an afternoon in person
ANOTHER MONTH DOWN
But now, it’s Groundhog Day!!!
The newly looped in partners want to:
1. Hop on a call
2. Ask you all the same questions
3. Grill you like grilled cheese
4. Spend an afternoon in person
ANOTHER MONTH DOWN
13/ And 5...
The scariest part. They want to meet your whole executive team.
Fuck. This is getting serious. You don’t want to freak out your team, but it looks like this is happening.
You rally your key execs and you muster up the courage to tell them you’re selling the biz.
The scariest part. They want to meet your whole executive team.
Fuck. This is getting serious. You don’t want to freak out your team, but it looks like this is happening.
You rally your key execs and you muster up the courage to tell them you’re selling the biz.
14/ They freak out.
They’re worried about their jobs. About their teams. About the culture.
Who are these new corporate NY overlords?
You spend 4-7 days trying to calm everyone down.
The Partners descend on your office...
They’re worried about their jobs. About their teams. About the culture.
Who are these new corporate NY overlords?
You spend 4-7 days trying to calm everyone down.
The Partners descend on your office...
15/ They are cool and charming. You have to be to raise $500mm.
They spend 2 days grilling all your executives.
It goes fine. Everyone is getting used to the idea of working for this PE firm. We’re almost at the finish line...
CUTE! WE ARENT EVEN CLOSE!!!!
They spend 2 days grilling all your executives.
It goes fine. Everyone is getting used to the idea of working for this PE firm. We’re almost at the finish line...
CUTE! WE ARENT EVEN CLOSE!!!!
16/ They’ve started diligence. Digging into your accounting etc.
By now you’ve signed a binding “letter of intent” which means you can’t discuss selling with any other parties. You’re locked in for the next few months.
They’ve got you right where they want you...
By now you’ve signed a binding “letter of intent” which means you can’t discuss selling with any other parties. You’re locked in for the next few months.
They’ve got you right where they want you...
17/ You’re now FOUR months in.
You’ve spent an ungodly amount of time distracted by this.
Your team is freaking out.
But you’re almost a millionaire.... you just want to get this done so you can buy your new house/boat/whatever.
You’ve spent an ungodly amount of time distracted by this.
Your team is freaking out.
But you’re almost a millionaire.... you just want to get this done so you can buy your new house/boat/whatever.
18/ The Partners call you. They have a lot of concerns... the tone has changed.
They were over the moon about your business before you signed the LOI, what changed?
They share a huge list of seemingly minor complaints:
A small accounting issue gave them a “moment of pause”...
They were over the moon about your business before you signed the LOI, what changed?
They share a huge list of seemingly minor complaints:
A small accounting issue gave them a “moment of pause”...
19/ They are concerned they’ll have to “level up” the management team.
Your Margins seem unsustainably high.
They go cold.
WHY DIDNT THEY SAY THIS STUFF EARLIER????
They raise the idea of solving their concerns with...
AN EARNOUT
Your Margins seem unsustainably high.
They go cold.
WHY DIDNT THEY SAY THIS STUFF EARLIER????
They raise the idea of solving their concerns with...
AN EARNOUT
20/ BUT YOU TOLD THE ASSOCIATE ON THE VERY FIRST CALL NO EARNOUT!!!
THEY TOLD YOU YOU COULD TRANSITION OUT AND RETIRE!!!
They send you the purchase and sale agreement, the binding legal document that dictates the real terms of the deal...
THEY TOLD YOU YOU COULD TRANSITION OUT AND RETIRE!!!
They send you the purchase and sale agreement, the binding legal document that dictates the real terms of the deal...
21/ Not only is the upfront cash only 30% of what it was in the original offer letter, but there’s a 5 yr earnout, they take profits out first (a pref), they control all major decisions, and best of all: a 5 year contract for you.
22/ There must be a mistake.
For 3 months they’ve been sweet talking you.
Saying they love your business.
Saying it’ll be a quick deal.
Saying you can transition out.
Saying no earnout.
And here you are.
For 3 months they’ve been sweet talking you.
Saying they love your business.
Saying it’ll be a quick deal.
Saying you can transition out.
Saying no earnout.
And here you are.
23/ Take the red pill, you sell your soul for the next 5 years.
You sign a contract and get locked into your business working for someone else.
You get enough money to buy a new house, but maybe not enough to retire.
You go from being an entrepreneur to an employee.
You sign a contract and get locked into your business working for someone else.
You get enough money to buy a new house, but maybe not enough to retire.
You go from being an entrepreneur to an employee.
24/ Take the blue pill and it all goes away.
Except $200,000 in legal fees and wasted team and personal time.
Your team is left shell shocked. Maybe pissed.
You don’t know what happened. It felt so close.
You did the PE HUSTLE!!!
Except $200,000 in legal fees and wasted team and personal time.
Your team is left shell shocked. Maybe pissed.
You don’t know what happened. It felt so close.
You did the PE HUSTLE!!!
