While Aristotle famously considered the whole to be greater than the sum of its parts, the private equity model of the 1980s may have disagreed.
At the time, the space was heavily focused on leveraged buyouts and distressed investments. Firms purchased companies to break them up and sell them off in pieces. Investors treated the process as an exercise in financial engineering, implementing aggressive budget cuts in pursuit of short-term gains.
Four decades later, the landscape has matured. Today, most private equity firms take a long-term approach that emphasizes creating value by investing, professionalizing and modernizing their portfolio companies. Rather than breaking companies up, sponsors are more likely to employ add-on acquisitions to develop a more robust business model.
Despite this evolution, private equity has struggled to shake its reputation, making some first-time candidates wary of the space.
For highly-motivated executives, a position with a private-equity-backed company can offer unparalleled career advancement. But over the years, we have repeatedly heard the same concerns holding otherwise promising candidates back.
Individuals are often nervous that private-equity-backed companies will be unstable, placing them at the mercy of volatile management. In reality, private equity firms can bring stability by infusing capital, expertise and strategic guidance.
While executives in privately-owned or public companies often have to navigate complex internal politics, an individual’s career trajectory in private equity will be tied solely to their achievements. If they perform well, they will have the numbers to prove it, making them more valuable in the marketplace.
Naturally, a position in a portfolio company also carries certain risks. Private equity investments typically have a defined hold period — usually three to seven years — after which the sponsor exits the investment.
Depending on the buyer, this could impact the candidate’s career progression. For instance, if the company is acquired by a larger competitor, the new owner may eliminate roles.
That said, once an executive has experience scaling a private-equity-sponsored business, they have a skill set that is constantly in demand and can command considerable value — career security in itself.
In addition, since the average tenure for a C-suite position is 4.9 years, even an executive who is only in place for the hold period could fare similarly in a public or privately-owned company. However, private equity may offer substantially better rewards.
For candidates weighing a role in private equity, the interview process is an opportunity to assess whether the business demonstrates a healthy, collaborative approach to growth. Candidates should ask questions that get to the heart of the company’s vision and look for alignment between the internal team and the sponsor.
- How is the company creating value? What is the overall vision — and how will it be executed over the next five years?
- What should an executive achieve in their first 100 days?
- What is the private equity firm’s financial commitment? Should the portfolio company need further capital, will the sponsor extend additional funds?
Candidates should also research the sponsor’s history, evaluating their successful investments, industry expertise and commitment to the companies they back. A business with several short-term CEOs could be a red flag. Likewise, deeper issues could be at play if a firm lacks financial transparency.
On the other hand, firms with a proven record of building relationships and facilitating sustainable growth are likely to be solid partners for the company — and the candidate.
A Good Match
Not every candidate is the right match for private equity. A new executive may be supporting a team that is navigating institutional capital for the first time. An effective leader will be able to communicate in a way that helps employees embrace the moment rather than run from it.
The candidate will also need to be comfortable deploying their own strategy. Unlike corporate roles, private equity provides significant autonomy. Leaders will need to show initiative.
Those who thrive in a fast-paced, goal-oriented environment will likely enjoy the unique challenges and opportunities that come with a role in a private equity-backed company.
By focusing on their fit with the company’s growth objectives — and rising above outdated misperceptions — candidates can position themselves as strong contenders for roles that will contribute to their long-term success.