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Case Study: Transitioning Executives to Private Equity-Backed Ownership

Written By: Gerald O’Dwyer III 

The PE Guru — Blackmore Partners, Inc | June 22, 2024

For many executives, the transition from a W2 job to a role where they can leverage their skills in private equity-backed ownership represents the pinnacle of professional fulfillment. This case study examines the journeys of three executives who missed this opportunity due to fear of open-ended risks. It presents a compelling case for investing in upskilling, leveraging resources like PitchBook, ACG, and BlackmoreConnects, and building a robust PE funnel. The focus is on finding companies to buy with PE firm funding or securing C-suite roles in portfolio companies (Portcos) with equity.

The Stories of Missed Opportunities

John, the Corporate Veteran:
  • Situation: Senior executive at a Fortune 500 company, yearning for ownership and meaningful impact.
  • Hesitation: Fear of income uncertainty and failure.
  • Outcome: Remained in his W2 role, missed out on substantial financial rewards and personal fulfillment.
Lisa, the Ambitious Innovator:
  • Situation: Dynamic tech executive with innovative ideas.
  • Hesitation: Daunted by the prospect of leaving a secure job for uncertain opportunities in PE.
  • Outcome: Stayed in her W2 role, regretting the missed chance to be an investor-operator.
David, the Seasoned Finance Professional:
  • Situation: Experienced finance professional with aspirations in PE.
  • Hesitation: Comfort and fear of the unknown prevented the leap.
  • Outcome: Continued in his high-paying W2 job, feeling a persistent sense of missed opportunity.

The Case for Investing in Upskilling

To avoid the pitfalls experienced by John, Lisa, and David, investing in upskilling and strategic resources is crucial. Here’s how you can make this transition successfully:
Step 1: Education and Research
  • PitchBook: A powerful tool for researching potential investment opportunities, understanding market trends, and connecting with PE firms.
  • Action: Subscribe to PitchBook and spend time analyzing market data to identify promising opportunities.
Step 2: Networking
  • ACG (Association for Corporate Growth): Join ACG to connect with professionals, attend events, and gain insights into the PE industry.
  • BlackmoreConnects Conferences: Attend these conferences to build a network of over 200 PE contacts, crucial for finding the right investment opportunities.
Step 3: Building Your Funnel
  • Develop a PE Funnel: Use the contacts and information from PitchBook, ACG, and BlackmoreConnects to build a robust funnel of potential PE opportunities.
  • Action: Aim to connect with at least 200 PE firms and regularly update your funnel with new prospects.

The Financial Impact of Upskilling

Consider the financial transformation of investing in PE compared to staying in a W2 job. Here’s a simplified example:
Assumptions:
  • W2 Salary: $200,000 annually.
  • PE Investment: Initial capital of $200,000, aiming for a 3x return over 5 years.
  • Annual Growth Rate: 20%.
W2 Job
  • Total earnings over 5 years: $1,000,000 (without accounting for taxes and bonuses).
PE Investment
  • Initial Investment: $200,000.
  • Yearly Growth (20%):
    • Year 1: $240,000
    • Year 2: $288,000
    • Year 3: $345,600
    • Year 4: $414,720
    • Year 5: $497,664
  • Total Value after 5 years: ~$500,000 (with a potential for further growth based on the PE firm’s performance).
Net Gain Comparison:
  • Staying in W2: $1,000,000
  • Transitioning to PE: $500,000 (with significant potential for additional equity-based returns).

Strategies for Becoming a PE-Backed Owner or Executive

  1. Identify Acquisition Targets:
    • Use PitchBook to research companies within your industry that fit your acquisition criteria.
    • Focus on businesses with $3-$10M EBITDA, recurring revenue models, and growth potential.
  2. Leverage Your Network:
    • Join ACG to build relationships with key industry players and potential investors.
    • Attend BlackmoreConnects conferences to meet PE firms interested in funding acquisitions or hiring for C-suite roles.
  3. Position Yourself as a C-Suite Candidate:
    • Highlight your track record and strategic vision to PE firms looking for leadership in their portfolio companies.
    • Use your network to identify Portcos experiencing turnover in the C-suite and present yourself as a solution with a clear plan for value creation.

Embracing the Hard Asset Inflation / Paper Asset Deflation Theory

As financial systems become increasingly fragile, wealthy individuals are likely to shift their investments towards tangible assets. This shift can unleash significant inflation in hard assets while deflating paper assets, fundamentally changing investment strategies.
Action Plan:
  1. Invest in Tangible Assets: Focus on companies with strong fundamentals, real estate, and other hard assets.
  2. Diversify Portfolio: Balance your investments between hard assets and high-potential PE opportunities to mitigate risks.
  3. Stay Informed: Continuously educate yourself on market trends and economic theories to adapt your strategy accordingly.

Conclusion

Transitioning from a W2 job to becoming an investor-operator in private equity requires overcoming the fear of open-ended risks and embracing strategic upskilling. By leveraging tools like PitchBook, joining networks such as ACG, and attending BlackmoreConnects conferences, executives can build a robust PE funnel and capitalize on emerging market opportunities. Investing in hard assets and understanding the implications of the Hard Asset Inflation / Paper Asset Deflation Theory can further enhance financial resilience and growth. Don’t miss the boat—start your journey today and secure a future of meaningful equity ownership and professional fulfillment.