© David Teten 2012. More at ffvc.com and teten.com © David Teten 2012. More at ffvc.com and teten.com
Serving as an Expert Network Consultant, Interim Executive, Senior Advisor, Board Member, Deal Executive, and/or Executive/Entrepreneur in Residence
How Entrepreneurs and Senior Executives Can Work with Private Equity and Venture Capital Portfolio Companies
http://www.flickr.com/photos/izzard/183927/
David Teten Partner, ff Venture Capital Chairman, Harvard Business School Angels of New York ffvc.com teten.com @dteten teten.com/contact
© David Teten 2012. More at ffvc.com and teten.com © David Teten 2012. More at ffvc.com and teten.com
• Selected private equity and venture capital funds
• CEO Trust • Executive Forum • Harvard Business School Alumni Career Management Webinar Series • Harvard Business School Club of Connecticut • International Executives Resource Group • Institute for International Research PE Operations conference
Selected past audiences for this presentation
Intro Advisor Board Next Steps Expert Deal Exec
© David Teten 2012. More at ffvc.com and teten.com
• Introduction
• Expert Networks and Interim Executives
• Senior Advisor Networks
• Board of Directors
• Deal Executives/EIRs
• Next Steps
Agenda
Intro Advisor Board Next Steps Expert Deal Exec
© David Teten 2012. More at ffvc.com and teten.com
Don’t Take Notes!
Download these slides from: http://www.teten.com/operating-executives/
Intro Advisor Board Next Steps Expert Deal Exec
© David Teten 2012. More at ffvc.com and teten.com
Background
David Teten is currently leading the first-ever research study on “Best Practices of Venture Capitalists in Increasing Portfolio Company Value through Operational Improvement”, with coauthors Koen Bremer, Gyorgy Buslig, and Adham Hussein. In 2010, he published the first-ever research project on “Best Practices in Private Equity and Venture Capital Deal Origination”, with Chris Farmer, Venture Partner, General Catalyst.
These slides provide some of the learnings from these published research studies.
Intro Advisor Board Next Steps Expert Deal Exec
© David Teten 2012. More at ffvc.com and teten.com
ff Venture Capital (ffvc.com)
• Early-stage technology venture capital fund • Founded 1999, with over 150 investments in over 55 companies • Focus on early stage web-based services companies with disruptive models,
including SaaS, video gaming, digital media, social, mobile and VoIP • First investments typically $50-$250K at valuations of <$5m pre-money • 50% of fund reserved for follow-on investments • Prominent investments include:
Cornerstone OnDemand (IPO); Quigo Technologies (sold to AOL for reported $340m); Klout; 500px; Voxy; BetterWorks
Intro Advisor Board Next Steps Expert Deal Exec
© David Teten 2012. More at ffvc.com and teten.com
• Partner, ff Venture Capital, early-stage technology venture capital fund. Over 150 investments in over 55 companies since 1999.
• Founder and Chairman, Harvard Business School Angels of New York • Founder and Chairman, Navon Partners, startup focused on sourcing deals for private
equity funds • Managing Director, Evalueserve, through September 2008. 2,500-person finance-focused
research and analytics firm. • Founder and CEO, Circle of Experts (investment research firm), sold to Evalueserve • Founder and CEO, Teten Executive Recruiting, sold to Accolo (#42 on 2007 Inc. 500) • Founder and CEO, GoldNames, domain name investment bank, based in Israel • Technology/Defense Investment Banking, Bear Stearns (#1 group at Bear investment
banking by revenues) • Lead author, The Virtual Handshake: Opening Doors and
Closing Deals Online (TheVirtualHandshake.com) • Harvard MBA 1998, Yale BA, both with honors. • Contact: teten.com/contact
David Teten (teten.com)
Intro Advisor Board Next Steps Expert Deal Exec
© David Teten 2012. More at ffvc.com and teten.com
Fund
Com
mitm
ent
Free Agent expenses+whatever you negotiate
Rejected Executives
Senior Advisor / Deal Executive expenses+whatever you negotiate
Executive/Entrepreneur in Residence modest retainer+upside
Portfolio Company / NewCo Management salary+upside
Executive’s Income
Expert Network / Interim Executive $300/hour - $1,000/day
Operating Partner / Venture Partner salary+carry (sometimes)
PE Fund Structural Options in Working with Operating Executives
Private equity funds have a wide range of options in working with executives and entrepreneurs.
Board of Directors salary + upside
Intro Advisor Board Next Steps Expert Deal Exec
© David Teten 2012. More at ffvc.com and teten.com
Selected Searchable Databases of PE/VC Funds
You can identify institutional investors through one of multiple online databases.
All Investors Private Equity Venture Capital
• Capital IQ
• Galantes
• Grey House
• PEDatabase.com (free
trial)
• Pratt’s Guide
• Preqin
• ThomsonOne
• Centre for Asia
Private Equity Research
• Eurekahedge
• Pitchbook (free trial)
• PrivateEquityFirms.com
(free trial)
• AngelList (free)
• CrunchBase (free)
• Dow Jones Venturesource
• Findthebest.com (free)
• PWC MoneyTree
• TheFunded (free)
• VentureDeal (free trial)
• Asian Venture Capital
Journal
Intro Advisor Board Next Steps Expert Deal Exec
© David Teten 2012. More at ffvc.com and teten.com
Source of Gains in Private Equity-Backed Companies
Ernst & Young 2006 study of 100 exits
Operational improvement drives 71% of value creation in PE-backed companies.
Intro Advisor Board Next Steps Expert Deal Exec
© David Teten 2012. More at ffvc.com and teten.com
Global economic crisis • Most portfolio companies require operating changes to survive Investors seek differentiation • Bain: “as much as 80% of PE returns will come from real performance
improvement, rather than … financial structuring.”* Maturing Private Equity Industry • Larger size and greater complexity leads to greater role specialization Risk Mitigation • Operational perspective add counter-balance to deal team Strategy Driven • Deep value investing, turnarounds, mid-market focus, and industry-specialized
funds require hands-on approach. based on Jon Weber, Anchorage Advisors LLC
* http://www.bain.com/bainweb/publications/publications_detail.asp?id=10735&menu_url=publications_results.asp
Operational improvement is particularly important now because of the economic landscape and the maturation of the PE industry.
Intro Advisor Board Next Steps Expert Deal Exec
© David Teten 2012. More at ffvc.com and teten.com Matthew Kissner, Kissner Group
Management Environment Before and After PE Investment
PE funds almost always require an upgrade in management, and change management teams if necessary.
Before Investment After Investment Reporting Independent Have a “boss”
Style Loose, entrepreneurial Financial discipline
Decision making Just do it Board approval
Determining success Divide up the cash at the end of the year
Monthly financials, annual bonuses
Spending Invest as needed Must be justified
Intro Advisor Board Next Steps Expert Deal Exec
© David Teten 2012. More at ffvc.com and teten.com Matthew Kissner, Kissner Group
Growth Capacity Before and After PE Investment
PE funds require a company to lay capacity for organic and, often, acquisition-led growth.
Success Factors when Small Success Factors for Growth Lean senior executive team Complete senior and mid-management
team Informal small group dynamics Formal roles, responsibilities, and
systems Ad hoc IT projects – reactive Flexible and scalable IT Cash basis financial systems Strong monthly financial and
operational reporting All business is good business Customer segmentation Limited prioritization Strategic plan drives priorities
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
• Introduction
• Expert Networks and Interim Executives
• Senior Advisor Networks
• Board of Directors
• Deal Executives/EIRs
• Next Steps
Agenda
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
Overview: Expert / Interim Executive
Position • Provide advice to investors, primarily in 30-60 minute phone calls • Act as executive for short time period, typically 7-30 days Pay • $100-$1,000 / hour Path Forward • Register at expert network and interim executive web sites • Maintain a very detailed and current bio, and update your availability • Keep current on your industry • Proactively seek new assignments • Consider becoming a public expert, e.g., with PRNewsWire ProfNet,
HelpaReporter.com
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
• Interact with professional investors and corporations
• Strategic, thought-provoking projects • Competitive compensation • Receive fees to introduce colleagues
and the big NO’s: • No membership cost • No marketing cost • No time spent on negotiating or
chasing payment
Benefits To Executive of Participating in Expert Network
http://flickr.com/photos/foundphotoslj/1134148114/
Expert networks are highly attractive to participants, whether working full-time, consultants, or in transition.
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
Expert Network Access Model
Investor Buyers
Academics
Supplier
Government
New Entrants
Competitor Corporate Alumni
based on Competitive Strategy: Techniques for Analyzing Industries and Competitors, Michael Porter.
Management
Expert networks provide investors access to experts from all of the forces that impact a company.
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
Generalists • Advantus Global (acquired
Evalueserve Circle of Experts) • CognoLink • GLG Research (market leader) • Coleman Research Group • DeMatteo Monness LLC • Guidepoint Global
Specialty/Other Players • Kingfish Group • Maven Research • Primary Insight
Selected Leading Expert Networks
The expert network industry is the fastest-growing sector of the investment research sector, with aggregate revenues over $300m.
Medical • MEDACorp (Leerink
Swaan) • Sermo
Intro Advisor Next Steps Expert
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Board Deal Exec
USA-focused • Business Talent Group • Highpoint Associates • Point B • 10EQS
Europe-focused • a-connect • Eden McCallum
http://www.flickr.com/photos/opendemocracy/1441901063/
Selected Consultant Networks
Networks of independent consultants have emerged as a new niche, typically engaging in projects of 2-6 months duration.
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
Selected Interim Executive Providers
USA • Business Talent Group • Epoch • Executive Smarts • ForteCEO • Heidrick & Struggles • Interim America • OnDemand Resources • OneAccord • Tatum Executive Services • Willmark Associates
Europe • Alium Partners • BIE • Brooklands Executives • EIM (Executive Interim Management) • Impact Executives • Marble Hill Partners
http://www.flickr.com/photos/opendemocracy/1441901063/
The interim executive industry is much better developed in Europe than in the US.
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
Other forms of engagement: • Presentations • Surveys • White papers • Longer consulting projects
http://farm2.static.flickr.com/1318/1134149284_85feb293d3.jpg?v=0
Expert networks engage with experts in a range of ways, but telephone calls are the primary method.
Intro Advisor Next Steps Expert
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Board Deal Exec
• Accept/Reject request within 48 hours
• Consultation strictly between expert and client
• No fixed obligation
http://farm4.static.flickr.com/3274/2866399803_8c9493b42f_o.jpg
Expert networks are designed to require an extremely low level of commitment from experts.
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
Experience • Industry Recognition • Academic credentials Access to unique knowledge • Affiliations Communication skills
Irrelevant: social skills, management skills
http://www.flickr.com/photos/kanzeon_zen_center/183801709/
Expert Network Selection Criteria
Expert networks assess experts based on their knowledge and ability to share it.
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
• Update your availability and bio - Quantify achievements - Explain how you acquired your
expertise • Insert specific keywords
- Identify firms you touched - Focus on industry-specific
knowledge • Update your bio and profile questions
again based on consults you get • More ideas: teten.com/resume
The #1 driver of your participation in expert networks is the quality of data in your online profile.
http://www.flickr.com/photos/edenpictures/3460562429/sizes/z/in/photostream/
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
• Apply for open projects • Mail your liaison when you have
insight into a hot topic - breaking news - a conference you just attended
• Go on-call • Contribute to expert network
discussion boards (e.g., Quora.com, HighTable.com)
• Ask
http://www.flickr.com/photos/sarahquinn/124454341/
Successful consultations lead to more consultations. Also, experts can increase consulting volume through 5 methods:
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
• Observe compliance restrictions • Review current news • Ask client’s level of background—
do they want an introduction or to jump into very specific topics?
• Ask questions to understand the client’s hot buttons
• Make sure to answer client’s key questions
• Acknowledge your limits • Prepare to debate • Offer referrals
http://upload.wikimedia.org/wikipedia/commons/3/3b/Old_key_on_table.jpg
Thorough preparation for a consultation enhances your client ratings.
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
• Register at expert network and interim executive web sites (and LinkedIn, job boards, etc.) - Biography - Hourly billing rate - Resume
• Consider becoming a public expert: PRNewsWire ProfNet, HelpaReporter.com
http://www.flickr.com/photos/twodolla/1764565402/
Next steps to becoming an active expert network member…
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
Agenda
• Introduction
• Expert Networks and Interim Executives
• Senior Advisor Networks
• Board of Directors
• Deal Executives / EIRs
• Next Steps
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
Overview: Senior Advisor
Position • Work closely with fund to source deals • Work closely with portfolio companies to mentor & provide advice • Modest time commitment, typically 2-10 hours/month Pay • Variable pay; retainer or service fee Path Forward • Work for 10+ years as successful entrepreneur/executive • Research funds with established advisor networks / EIR programs and
contact them via referral
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
“Senior advisor network” or “Executive network” = investor-sponsored group of executives with ability and willingness to add value to portfolio companies
Industry Expert
Deal Source
Interim CFO Investor
Portfolio Company “C”
Portfolio Company “B”
Portfolio Company “A”
Board Member
based on Jon Weber, Anchorage Advisors LLC
Definition
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
based on table from Jon Weber, Anchorage Advisors LLC
Senior Advisor Network vs. Traditional Talent Sources
Senior Advisor networks offer a low-fixed-cost, high-return talent pool option.
Experts and Consultants Senior Advisor Network Executive Recruitment Relationship Owner
Expert network / consultancy Fund Recruiting firm, then handed over to fund
Duration 1–2 hours to 3 months 6 months–2 years+ Permanent job and board positions
Sample Service Providers
Gerson Lehrman, McKinsey Harvey & Co., Notch Partners
Accolo, Heidrick & Struggles, Ignition Search Partners, Russell Reynolds
Illustrative Cost $1,000/hr for expert networks $300–700/hr for consultants
Sometimes retainer, sometimes paid like investment banker
1/3 compensation
Driver of Exec Compensation
Length of consultation Value creation and continued involvement with client companies
Winning full-time employment
Confidentiality NDA possibly. Consultant may “shop” ideas.
Signed, enforceable NDA NDA unusual
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
Selected Funds with Senior Advisor Networks
Many leading PE and VC funds have built Senior Advisor Networks.
Private Equity Venture Capital • 3i • Castle Harlan • Cerberus • Irving Place Capital • General Atlantic • Goldman Sachs Special Situations
Group • Sun Capital • Welsh, Carson, Anderson & Stowe
• ff Venture Capital • 500 Startups • Great Oaks Venture Capital • Lions Capital
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
U.S. Funds That Typically Partner with Executives to Execute a Transaction and Bring in New Management Upon Investing
Data based on firm websites. Frontenac AUM based on last two funds. # Investments/Year based on mean activity level over firm’s existence, with some adjustment for growth of fund over time.
Partnering with operating executives is a successful strategy which is a focus for only a small number of funds.
Private Equity Fund Founded AUM ($m)
Cum. # Investments
# Deals/ Year (est.)
GTCR 1980 $8,000 100 7 Wind Point Partners 1984 $2,000 80 5 Frontenac Company 1971 $875 200 5 Housatonic Partners 1997 $1,000 50 4 Prospect Partners 1998 $270 35 3 Red Diamond Capital 2002 $150 8 1 Post Capital Partners 2004 $100 7 1
Intro Advisor Next Steps Expert
© David Teten 2012. More at ffvc.com and teten.com
Board Deal Exec
http://farm1.static.flickr.com/7/8228640_921246eaa3.jpg?v=0
• Abernathy Group “Collaborative Investing”
• Castle Harlan • Frontenac • Institutional Venture
Partners Founders Fund • Irving Place Capital
(formerly BSMB)
Selected PE Funds with Executive Funds
Some PE funds offer favorable economic terms for executives who are “friends of the firm”.
Intro Advisor Deal Exec Next Steps Expert Board
© David Teten 2012. More at ffvc.com and teten.com
Agenda
• Introduction
• Expert Networks and Interim Executives
• Senior Advisor Networks
• Board of Directors
• Deal Executives / EIRs
• Next Steps
Intro Advisor Deal Exec Next Steps Expert Board
© David Teten 2012. More at ffvc.com and teten.com
Overview: Board of Directors
Position • Broad oversight of management and company Pay • Startups: options • Established companies: $100-200K on up plus equity Path Forward • Have history of leadership / management experience, at the C-level • Contact recruiters in this sector via referral • Many boards aggressively seeking women and minority representation
Intro Advisor Deal Exec Next Steps Expert Board
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What are Boards responsible for?
• Broad oversight of management • Manage CEO succession • Guidance and strategic sounding board • “Mentors and Monitors”
“Landing a Board Seat” for International Executive Resources Group-Boston. October 26, 2011. New Directions, Inc.
Intro Advisor Deal Exec Next Steps Expert Board
© David Teten 2012. More at ffvc.com and teten.com 38
What do Boards look for in their directors?
• Proven leadership • Specific skills or experience, e.g.:
– Financial background – International experience – Position as active or retired CEO – Experience in dealing with challenges faced by company / CEO
• Network – E.g. for startups: connection to VCs
“Landing a Board Seat” for International Executive Resources Group-Boston. October 26, 2011. New Directions, Inc.
Intro Advisor Deal Exec Next Steps Expert Board
© David Teten 2012. More at ffvc.com and teten.com
• Board & Committee meeting fees vs. retainers • Mix of cash + equity
– Shifting to more equity, less cash – Equity grants
• Shares vs. options • Fixed value vs. fixed shares
– Equity ownership requirements
Director compensation
“Landing a Board Seat” for International Executive Resources Group-Boston. October 26, 2011. New Directions, Inc.
Intro Advisor Deal Exec Next Steps Expert Board
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Micro Small Medium Large Top 200
Valuation $50-$500M % inc
YOY
$500M<$1B
% inc YOY
$1B< $2.5B
% inc YOY
$2.5B<$10B
% inc
YOY >$10B
% inc YOY
Total Director Comp
$91K 20% $119K 10% $148K 13% $176K 7% $228K 5%
Change in Total Director Pay by Company Size
% inc YOY = % increase over 2009-2010 data. Source: 2010 –2011 NACD Director Compensation Report
Intro Advisor Deal Exec Next Steps Expert Board
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Four Strategies to Join a Board
• Communicate your value • Use your network
– Identify/contact search firms – Tap your own network (LinkedIn, Coworkers, Alumni Associations) – Networking Organizations (YPO, Industry Organizations)
• Increase your visibility – Speak at conferences – Publish whitepapers – Join expert networks
• Be imaginative, inventive, opportunistic – Invest in the company – Join a non-profit board
“Landing a Board Seat” for International Executive Resources Group-Boston. October 26, 2011. New Directions, Inc.
Intro Advisor Deal Exec Next Steps Expert Board
© David Teten 2012. More at ffvc.com and teten.com
Additional Resources
• “How to get on a board:” http://www.businessweek.com/careers/content/sep2007/ca20070913_129202.htm .
• Resources: – Your own company’s board – NASDAQ’s registry of prospective directors:
http://www.nasdaqomx.com/whatwedo/corporatesolutions/ – Catalyst for potential female directors: http://www.catalyst.org/ – ELC for African-American directors: http://www.elcinfo.com/ – Hispanic Association on Corporate Responsibility: http://www.hacr.org/
• http://www.advisoryboardarchitects.com/blog/how-get-board-directors-or-high-level-advisory-board
• http://newdirections.com/
Intro Advisor Deal Exec Next Steps Expert Board
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Examples of Recruiting Firms with Boardmember Services
• Korn Ferry: http://www.kornferryinstitute.com/leadership/board_of_directors.php
• Stybel, Peabody: http://www.stybelpeabody.com/newsite/index.php • Allen + Associates: http://www.allensearch.com/ • Spencer Stuart:
http://www.spencerstuart.com/services/boards/recruitment/
Intro Advisor Deal Exec Next Steps Expert Board
© David Teten 2012. More at ffvc.com and teten.com
Agenda
• Introduction
• Expert Networks and Interim Executives
• Senior Advisor Networks
• Board of Directors
• Deal Executives / EIRs
• Next Steps
Intro Advisor Deal Exec Next Steps Expert Board
© David Teten 2012. More at ffvc.com and teten.com
Overview: Deal Executive / EIR
Position • Full-time role looking for a company to invest in, and typically serve in as
CEO Pay • Usually modest retainer with carrot of finder’s fee + CEO role in new
company Path forward • Demonstrate history of successfully leading company at C-level, or
direct report to C-level • Offer a deal thesis or letter of intent to PE firm
Intro Advisor Deal Exec Next Steps Expert Board
© David Teten 2012. More at ffvc.com and teten.com
How Private Equity Views Executives
Job Seeker Deal Resource
Thesis-Driven Deal Exec
Deal Exec with Letter of Intent
Target-Driven Deal Exec
http://www.flickr.com/photos/chailey/138654755/ . Inspired by Notch Partners.
PE funds are primarily looking for deals, not executives.
Intro Advisor Deal Exec Next Steps Expert Board
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Selected Venture Capital Funds with Formal EIR Programs
Certain VC funds proactively seek out qualified Entrepreneurs in Residence
• Austin Ventures • Dell (the computer company) • Foundation Capital • ff Venture Capital • General Catalyst • Redpoint Ventures • VTT Technical Research Centre of Finland
Intro Advisor Deal Exec Next Steps Expert Board
© David Teten 2012. More at ffvc.com and teten.com http://www.flickr.com/photos/bfurlong/2351689062/ . Based on Notch Partners and many other sources.
• Clear definition of industry – niche, size, geography, etc. • Transaction rationale consistent with company’s growth prospects • Basic financial markets analysis: trading range, feasibility • Outline of value-creation opportunities • Plan for pursuing those sources of value • Explanation of why you/ your team are ideally suited to lead effort • Roster of 5-20 target companies • Status of discussions with targets
(if any) • Thoughts on likely exit (IPO, strategic
buyer)
Elements of a Deal Thesis
Intro Advisor Deal Exec Next Steps Expert Board
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• Teaser • Business plan • Executive profile • Forecasts
- Strategic - Operational - Financial
http://www.flickr.com/photos/11846056@N06/3110329005/
Elements of a Deal Memo
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• CEO-level leader or direct report to C-level - 10+ years in industry/related
market. 10+ years leading P&L and preferably also balance sheet experience.
- Clear value creation plan. Understanding of private equity.
• Personal capital to invest • Ideally: ready management team;
corporate governance skills (board experience), investor relations experience
http://www.flickr.com/photos/ilker/2494740320/
Deal Executive Preferred Profile: Credibility
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• Compatible goals • Aligned incentives • Personal chemistry
http://www.flickr.com/photos/superrabbit/319538167/
Deal Executive Preferred Profile: Compatibility
Intro Advisor Deal Exec Next Steps Expert Board
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• Proactively seeking to identify deals. - Preferably, has proprietary deal(s)
• Financially stable to go without salary during search
• Spousal support • 100% committed to a risky process not
fully in your control • Entrepreneurial and sales oriented • Can relocate • Prefer: acquisition experience.
http://flickr.com/photos/krikit/2745563123/sizes/o/
Deal Executive Preferred Profile: Deal-Catcher
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• Akoya Capital • Blackmore Partners • Cook Associates • Harvey & Company • Ignition Search Partners
(VC-focused)
PE/executive intermediaries are investment bank+recruiter hybrids which work with executives throughout the process to help execute a transaction.
Leading Investment Banks/Recruiters Specializing in Matching PEGs with Executives
• Notch Partners • R.B. Price & Company • Silverfern Group • Skill Capital • Tri-Artisan Partners LLC
Intro Advisor Deal Exec Next Steps Expert Board
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• Review industry for feasibility: - Market trends (opportunistic research
analysis) - Valuation analysis - Capital-intensity requirements - Fragmentation analysis
• Profile executive to assess candidacy • Source companies • Source sponsors
http://www.flickr.com/photos/pfala/3036252334/
PE fund/executive intermediaries have a standard process to execute a transaction.
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• Find the company and get close to signing a Letter of Intent, then pursue sponsor
• Find sponsor and then search for company. - Executive screens for funds with track
record of pursuing executive-led transactions and interest in industry
- More important to use this strategy with larger deals
http://www.flickr.com/photos/thalamus/3560789785/
An executive has two main paths to choose from in pursuing a transaction:
Intro Advisor Deal Exec Next Steps Expert Board
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• Secrecy • Continuity • Speed • Lower investment banking fees • “Dummy insurance”: easier to keep a stake in the spunoff company • Trust/proven competency • Relationship with the Board of Directors
Rick Rickertson, Buyout: The Insider’s Guide to Buying Your Own Company, 49-50.
Primary Reasons Some Companies Prefer Selling to Management
Many companies prefer to sell to management, even at risk of a lower price than they might get from an auction.
Intro Advisor Deal Exec Next Steps Expert Board
© David Teten 2012. More at ffvc.com and teten.com Based on Post Capital, http://www.defenselink.mil/dodcmsshare/newsphoto/2008-03/hires_080301-F-2319R-006.jpg
• Introduction • Initial meetings • Assessment of investment thesis
Duration: 2-4 weeks
Step 1 of 5: Launch Relationship with Fund
Intro Advisor Deal Exec Next Steps Expert Board
© David Teten 2012. More at ffvc.com and teten.com Based on Post Capital, picasaweb.google.com/lh/photo/FOHUbVdTEYKdftpmi6TkXQ
• Refine thesis • Agree on compensation/economics
and exclusivity • Background check • Formulate deal origination plan
Step 2 of 5: Finalize partnership between executive and fund
Duration: 1-4 weeks
Intro Advisor Deal Exec Next Steps Expert Board
© David Teten 2012. More at ffvc.com and teten.com Based on Mario Kyd, Unlimited Horizons; http://www.flickr.com/photos/carve/2856365431/
• Inefficiencies within a market segment or industry
• Ineffective processes • Outdated business models • Competition from low cost countries • Novel product, process or idea • Rollup of fragmented industry • Industry changes (read the trade
rags)
Concept-Driven Approach (e.g., with investment banker)
Step 3 of 5: Identify/Contact Opportunities
Duration: 1-12 months
Intro Advisor Deal Exec Next Steps Expert Board
© David Teten 2012. More at ffvc.com and teten.com Based on Mario Kyd, Unlimited Horizons; http://www.flickr.com/photos/jurvetson/3346659199/
• Former employers, suppliers, customers, competitors
• Investment bankers, brokers, accountants, lawyers
• Attend conferences • Look for reasons why people sell
Opportunistic Approach (Network), led by Executive
Step 3 of 5: Identify/Contact Opportunities (cont’d)
Duration: 1-12 months
Intro Advisor Deal Exec Next Steps Expert Board
© David Teten 2012. More at ffvc.com and teten.com based on Post Capital; Lapis Group; numerous other sources. http://www.flickr.com/photos/matt_gibson/954340171/
• Company meetings • Negotiate • Due Diligence
• Can a deal be made? • Can we interest investors? • Can you “drive” the deal?
Step 4 of 5: Evaluate Targets
Duration: up to 3 months
Intro Advisor Deal Exec Next Steps Expert Board
© David Teten 2012. More at ffvc.com and teten.com Based on Post Capital upload.wikimedia.org/wikipedia/commons/4/47/Tower_Bridge_closing.jpg
• Finalize documentation • Finalize financing
Step 5 of 5: Closing
Duration: up to 3 months
Intro Advisor Deal Exec Next Steps Expert Board
© David Teten 2012. More at ffvc.com and teten.com
This does not reflect compensation for an executive’s role as a company employee post-deal. Note that transaction fee and carry are inversely related. * Robert Seber, Dechert LLP, “Transaction and Monitoring Fees: Does Anything Go?”, 2003.
** The PEG’s fund documents will generally discuss whether a portion of that fee (often half) is set off against management fees that the LP’s would otherwise owe. Other data based on Akoya Capital, Oberon Securities, and other interviewees.
Typical Economics for Mid-Market Private Equity Acquisition, for PEG, Deal Finders, Investment Bankers, and other Executives
Fee Type Payer Amount Recipient of Payment Transaction Fees
Capital providers
0.5-3.4% deal size*
PEG pays finder’s fee of 1-3% of enterprise value, plus sometimes carry, to deal finder + buy-side investment bank (if any). (Company (specifically selling shareholders) pay investment banker seller’s fee.)
Monitoring Fees
Company 0.2%-4.4% EBITDA (median 1.2%)*,**
Company pays outside board members for ongoing services (~$5K+/meeting + equity incentives)
Expenses Company Post-deal expenses, not pre-deal
Company pays PEG for post-deal expenses. Important for buy-side operating exec/investment banker to get PEG to commit to pay broken deal costs.
Carry Limited Partners
~1% assets + ~20% carry
LPs pay PEG this carry.
Investment rights
- - Usually unlimited co-invest rights for executives involved, with no PEG management fee. Executives will, however, pay pro rata monitoring/other fees.
Next Steps Intro Advisor Expert Board Deal Exec
© David Teten 2012. More at ffvc.com and teten.com
Agenda
• Introduction
• Expert Networks and Interim Executives
• Senior Advisor Networks
• Board of Directors
• Deal Executives / EIRs
• Next Steps
Next Steps Intro Advisor Expert Board Deal Exec
© David Teten 2012. More at ffvc.com and teten.com
• The Virtual Handshake: Opening Doors and Closing Deals Online, David Teten and Scott Allen
• Buyout: The Insider’s Guide to Buying Your Own Company, Rick Rickertson
• goodreads.com/teten • ffvc.com/careers • teten.com/blog
Suggested Reading
Next Steps Intro Advisor Expert Board Deal Exec
© David Teten 2012. More at ffvc.com and teten.com
Any questions ?
Slides at teten.com/operating-executives
ffvc.com teten.com @dteten teten.com/contact