Working The Private Equity Circuit

Are you a prime candidate for venture capital or other private investment backing? Here's how to get in the game.

idea of how things will wind up. There shouldn’t be any major surprises down the road.” Although there are exceptions, if you’re hoping to build a business that will remain in your family for generations, you may not be an ideal candidate for private equity funding.

If you’re willing to play by the rules, how can you attract private equity funding and cut the best deal? As might be expected, entrepreneurs and private equity pros have slightly different perspectives. Entrepreneurs see having the right personality (that is, fierce determination) and an intriguing concept as primary draws. Investment professionals stress willingness to do the research necessary to find a suitable venture capitalist, as well as the ability to present a sound business plan.

“You need to start out with the right concept,” says Thompson, “then sell that concept to one or more private equity firms. Once you have your backers on board, you can go looking for the right acquisition.”

That was the case with his present venture, Thompson says. He determined that there would be a consolidation among automotive suppliers, with the survivors rapidly increasing market share. “With private equity support, I put together a $90 million buyout in 1993. Since then, we’ve doubled our business.”

Thompson was successful in his bid for acquisition funding because his growth strategy made sense to the right investors. “If you want to get private equity funding, you need to show that you can assemble a complete management team and operate the company successfully,” he adds.

What about going in the other direction: finding a target company, negotiating a purchase price and then seeking the money from investors? “I wouldn’t recommend that,” says Thompson. “These [buy and sell] transactions tend to move quickly, so you don’t want to delay the sale looking for capital. Sellers are more interested in getting the deal done than in negotiating a higher price that won’t materialize.”

Entrepreneur turned business owner Dumas M. Simeus of Simeus Foods International in Mansfield, Texas (No. 15 on BE INDUSTRIAL/SERVICE 100 LIST), says that private equity sources look for knowledge, experience and passion–with the latter perhaps the most important. “Venture capitalists will back you only if they’re convinced that running this business will dominate your life. They put extreme importance on your past experience in running a business and your ability to consistently deliver the bottom line. You have to convince them that you’ll devote all your energy to making the company succeed.” What’s more, private equity investors generally demand that an entrepreneur make a substantial investment of personal wealth in the deal, enough so that he or she won’t likely walk away.

What advice do private equity professionals have for entrepreneurs? “Chemistry is everything,” says Herbert P. Wilkins Sr., managing general partner at Syncom, in Silver Spring, Maryland, which has three funds totaling $71 million and invests in telecommunications concerns. “Economics is not always the key to putting together a deal. A venture-capitalist backer will assign someone to keep track of

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