Private equity investment, the right fit for founder-led businesses?
Private equity (PE) investment has long been viewed with some scepticism by founder-led and family-owned businesses. Historically, the notion of relinquishing control to external investors often deterred founders from considering PE as a viable option. However, the landscape of PE has evolved significantly, challenging these preconceived ideas. Today, PE investment can offer newfound opportunities for individual businesses and entire industries. It can allow founder-led and family-owned businesses to thrive in a rapidly changing business environment, offering advantages otherwise beyond their reach.
The evolution of private equity
PE has traditionally been viewed as a potentially high-risk but high-reward investment option. For some, there has been an assumed association with leveraged buyouts, asset stripping and short-term profit maximisation, all of which made it seem incompatible with founder-led companies. However, this has changed over the last decade, with a shift towards more collaborative and growth-oriented approaches.
In 2021, it was estimated that over 26,000 companies in Europe were backed by private equity, 18,851 of which were SMEs.*
The critical role of leadership
Successful businesses are not merely products of financial engineering. They are built on a strong foundation of leadership and a steadfast commitment to long-term success. Contrary to some misconceptions, private equity (PE) firms do not always replace leaders in the businesses they back. Instead, they recognise the importance of strong leadership as a cornerstone of success. And, in the current climate, characterised by increasing interest rates and a heightened need for financial prudence, the importance of people – and leadership – is coming to the fore.
For founder-led businesses, private equity investment often complements existing leadership rather than supplanting it. PE firms understand the value of continuity and institutional knowledge that founders bring. They aim to work collaboratively with existing leadership teams, recognising that the right combination of skills and experience can drive the company to new heights.
One such example is Kids Planet Founder, Clare Roberts, who remains in role as CEO following investment from BGF in 2016. The investment led Clare to build a board, featuring non-execs from BGF, and make the key hire of Chief Finance Officer to drive the accelerated growth plans.
Embracing leadership as a science, not just an art, empowers founder-led businesses to make informed decisions about their leadership teams. These businesses can objectively interrogate their leadership capabilities by employing data-driven insights and objective assessments. This approach goes beyond intuition and gut feeling, ensuring that leadership is a quantifiable and measurable aspect of their success strategy.
How Leadership Dynamics can support
Objective assessments enable founder-led businesses to identify strengths and weaknesses within their leadership teams. By leveraging data and analytics, they can pinpoint areas for improvement and make informed decisions about leadership development. This approach enhances leadership effectiveness and contributes to long-term success.
The Leadership Dynamics product suite takes an objective and data-driven approach to enable fast-growth businesses to optimise their leadership team for success. It does this by benchmarking against 7,000 high-growth leadership teams within private equity invested businesses. So, you can make the right decisions, to support the business sooner.
If you’re interested to find out more about Leadership Dynamics get in touch with Gina Raymond who can advise how the product could support you in defining the leadership team required to deliver your value creation plans.
Source: Invest Europe – Private Equity At Work, 2022.
