Five Lessons About Private Equity
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Transcript of Five Lessons About Private Equity
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PRIVATE
DO’S
Quick
Photo via Envato
EQUITY
DON’TS and Excerpts from Mistakes Millionaires Make, by Harry Clark
Take the Entrepreneurial Risk Assessment at: www.pathwaypartnersllc.com
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My name is Harry Clark and I thought I had it made.
By 2004, I had:
founded two INC. 500 companies
450 employees
a $100 million net worth
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BUT I LOST
EVERYTHING
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I was thrown
by a notorious
private equity
firm
over a barrel
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On the Friday before funding the $20 million deal,
they asked my CFO to use
our last remaining $1.5 million in cash
to pay down our payables.
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Photo via Deposit Photos
On the Monday we were set to close,
The owner of the private equity firm
called me and said
Harry, we love your company
and we are all set to make the deal.
However, it seems you are out of cash
and you need us more than we need you.
So instead of $20 million for 20%,
we want 80% of the equity.
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My jaw dropped
I just got
SET
UP by these greedy
and unscrupulous
bastards
Photo via Dollar Photo Club
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I rejected the offer
out of principle, as
I didn’t want to see
my great company
fall into their hands.
Photo via Business Insider
Stupidly,
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That was a
All my 450 employees
were left without jobs.
$25 million in personal assets,
BIG
And I lost everything:
MISTAKE
a 20 year marriage
and 10 years of my life spent in legal battles.
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NO
RESOURCES
I also realized that there are
to help entrepreneurs avoid
common mistakes (like mine) once they made it
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ENTREPENEURS
That lead me to interview
30
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CRASHED
that
spectacularly
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CLIMBED
and
back up
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SHARE
I want to
what I discovered
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I heard many
HORROR
STORIES
related to
private equity firms
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PRIVATE
DO’S
So here are 4 quick
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EQUITY
DON’TS &
when it comes to
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#1
RELATIONSHIPS
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CONNECTIONS
Use private equity firms
with which you have
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Perhaps your advisory board members or CFO
have existing relationships with reputable firms.
Or maybe your lawyer or accountant have
longstanding relationships with some firms.
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In any case, I highly recommend that you
USE YOUR NETWORK
as much as possible to find reputable firms.
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#2
GUYS
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WHITE WITH HATS
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In the finance industry,
we differentiate
the good guys from
the notorious guys
in the industry as
the ones with white hats
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private equity firms
have fantastic reputations as
with
Photo via Thinkstock Photos
Many of the
HIGH
HONEST
PEOPLE
MORALS
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Photo via MTV
Don’t get caught up
with a notorious company
that just had a
hugely lucrative IPO exit
or some well known
brand names
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#3
EXCLUSIVITY
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Most private equity firms will require exclusivity during
due diligence, meaning you cannot talk to any
other private equity firm for the specified time period
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The reason for the exclusivity is that it can easily cost
the private equity firm $500,000 to do the due diligence
and they can’t afford to lose the deal once its started.
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However,
time might be of the essence
to close the deal.
For example, when your
company is growing fast,
cash is evaporating
NOTHING
and soon you’ll have
LEFT
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either
REFUSE
the exclusivity
In this case,
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Or require the private equity firm to
LEND YOU UPFRONT
the amount needed through the due diligence period.
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As in my earlier personal example,
you don’t want to be in a
DIFFICULT
at the end of your due diligence.
SITUATION
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#4
GUARANTEES
PERSONAL
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One of the best reasons for
raising private equity
is that it will almost invariably
remove you from having
PERSONAL
GUARANTEES
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Personal guarantees
for leases, loans, vendors and bonding
are the most common reasons
WIPED
why entrepreneurs get
OUT
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your personal guarantees will typically be
removed from all obligations
After closing a private equity transaction,
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frees you up to grow the company faster
This eliminates your downside risk and
which benefits the private equity investors
and take more risks,
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Learn more by reading my up-coming book
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Or by taking the
Entrepreneurial Risk Assessment Survey at
http://pathwaypartnersllc.com/
Or by subscribing
And remember: to my blog
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