The Ins and Outs of Private Equity for Entrepreneurs

In this Episode About The Ins and Outs of Private Equity for Entrepreneurs

• Overview of Private Equity Firms: The podcast explains private equity as similar to private mutual funds, with firms under pressure to deploy billions raised during COVID-19. They invest in companies over 8-10 years, using the “2 and 20” model to make money—2% management fees and 20% of profits.
• Investment Preferences and Control: Private equity firms typically prefer majority ownership to maintain control over investments. Minority stake deals are rare and often come with strict control provisions, limiting business owners’ decision-making. Family offices are one of the few willing to invest without demanding full control.
• Maximizing Returns through Leverage and Operational Changes: Private equity firms use strategies like preferred equity, aggressive asset management, and leveraging debt to minimize risks and maximize returns, often extracting value through cost-cutting and efficiency improvements, sometimes at the expense of the original owners.

Here is a Glimpse of The Ins and Outs of Private Equity for Entrepreneurs

In this episode of The Lazy CEO Podcast, host Jim Schleckser, joined by co-host Sharon McGuire, dives into the world of private equity, a hot topic expected to gain even more traction in the coming years. The discussion starts with an overview of private equity firms, comparing them to private mutual funds that invest pooled capital into various assets, often with a lifespan of 8-10 years. These firms face pressure to deploy their cash quickly, especially after the large sums raised during COVID-19, as sitting on uninvested money can upset investors.

Jim explains how private equity firms make money through the “2 and 20” model: a 2% management fee on invested funds and 20% of the profits. They aim for 8-12 investments to diversify risk, and the size of the firm dictates which companies they will invest in, often favoring deals worth millions or more.

The podcast highlights the challenge for business owners looking to sell minority stakes; most private equity firms prefer majority ownership for control. Even when minority deals occur, they come with significant control provisions, giving private equity firms veto power over major decisions. Family offices, which manage wealth for high-net-worth families, are one of the few entities willing to do minority deals without demanding full control.

Resources mentioned in this episode:

• John Wilson on LinkedIn
• Jim Schleckser on LinkedIn
• The CEO Project
• Great Ceos Are Lazy: How Exceptional Ceos Do More in Less Time by Jim Schleckser

Sponsor for this episode…

This episode is brought to you by The CEO Project. The CEO Project is a business advisory group that brings high-caliber, accomplished CEOs together. Our team of skilled advisors comprises current and former CEOs who have run both public and private sector companies across multiple industries. With our experience and expertise, we guide hundreds of high-performing CEOs through a disciplined approach that resolves constraints and improves critical decisions. The CEO Project has helped high-performing, large enterprise CEOs with annual revenues ranging from $20M to over $2 billion to drive growth and achieve optimal outcomes. If you are an experienced CEO looking to grow your company, visit www.theCEOProject.com.