As a successful entrepreneur, you’ve put tremendous focus, energy, and financial resources into your business. Now you’re looking for a capital partner who can help grow your company, but how should you choose?
I’ve been an investor for nearly 35 years at Equity Group Investments (EGI), the private investment firm founded by Sam Zell in 1968. Over the decades, I’ve observed that successful financial partnerships go well beyond just the capital investment—it’s critical to identify a partner who is fully aligned with your culture and long-term goals.
As you consider your options, here are three fundamental considerations we at EGI believe foster partnerships that can withstand economic cycles and potential black swan events:
1. Operating expertise: Appreciate the value of experience
When choosing a financial partner, look for a firm that has demonstrated they support management teams as they navigate events such as market crashes, cyberattacks, or the impact of extreme weather. Such partners will be far better equipped to help you lead your firm through its inevitable fluctuations as they’ve already experienced the difficulties of running a business. I would also value financial partners that have either operated a business themselves or firms that have operating partners. It’s one thing to understand business financials; actually having to manage employees and working with customers and suppliers introduces a whole new level of sensitivity.
You should seek a firm that has demonstrated its ability and commitment to helping companies grow, even during challenging times. This creates alignment and fosters a “when you win, we win” mentality.
2. Cultural and ethical alignment—the make-or-break factor
Cultural alignment is often the most telling—and most overlooked—indicator of a strong partnership. You’ve created a culture that has undoubtably motivated your team and contributed to your success. Now you need to make sure there is cultural alignment between you and your potential financial partner.
Most importantly, pay attention to the financial firm’s internal dynamics. Is the tenor among their colleagues collegial and respectful? Do junior staff seem engaged and eager to learn about your company? Is everyone encouraged to voice their opinion? If people disagree, can they still have a productive conversation?
How they treat one another is the single best indicator of how they’ll treat your team and help guide your business. A firm that is open, curious, and welcomes different perspectives will make better decisions and be stronger partners.
A firm’s culture will also be reflected in the longevity and stability of the team. The ability to retain and grow talent demonstrates how a firm values its human capital. Our president, Mark Sotir, has been here for 20 years, and our longest-tenured partner started four months before me, in 1990.
Finally, anticipate how your potential partner will respond during difficult moments. Will they show grace when you’re experiencing a business set-back and support you at critical stress points? At EGI, we never shoot the messenger—the only thing we’re going to ask of our partners is for full transparency. If they bring us a problem early, our first question is, “How do we help you?” That builds trust.
While a potential partner is assessing us, we’re also evaluating them for compatibility. For example, I once sat in a meeting where the CEO rudely dismissed a colleague’s opinion, which resulted in everyone on his team shrinking into their seats. That told me everything I needed to know about the culture of that firm.
3. Perform your own due diligence: Thoroughly vet the capital partner
Absolutely visit the financial firm’s office. This will give you the opportunity to assess its culture first-hand. I encourage potential management partners to visit our office. They see our colleagues eating lunch together in our “mosh pit” common room, sharing stories, talking about transactions, or watching sports (or the markets) on TV.
Also research the firm’s track record. Review past investments and speak to former management teams, particularly those in your industries with similar cycles and challenges, as well as bankers who have worked with the firm. Such references will give you insight into how the firm reacts in good times and bad.
Get a clear understanding of who will be on your team. Some firms have separate acquisition and operating teams. Having that knowledge up front will help you assess compatibility and strengths of those with whom you will interact on an ongoing basis.
Finally, understand the remaining life of an investment fund, as that can impact decision-making. Ask what happens if your time frame ultimately doesn’t align with the fund’s remaining life.
Choose wisely: It’s easier to get into a partnership than get out
When you partner with a private equity firm, the initial investment is just the beginning. After decades working with all types of companies, we’ve found that these fundamental considerations—operating expertise; cultural and ethical alignment; and thoroughly vetting the capital partner through your own due diligence—make all the difference in creating a terrific partnership. Liking and respecting the people you’ll work with will make the partnership more successful and enjoyable.
Focus on the fundamentals but look ahead with enthusiasm. The right partner can help you drive growth and make your company the success you have always envisioned.
The opinions expressed in Coins2Day.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Coins2Day .
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