A few years ago, I joined the board of directors of a company controlled by a private equity firm. I want to show you how I did it and how you can chart a path to a private equity board, too.
Before I pull back the curtain, let’s talk motivation.
Why would you want to serve on a private equity board?
My experience in private equity has been uniformly positive. The PE partner with whom I work is principled, supportive of management, and quick to act. With just six directors on board, our meetings are efficient. We focus entirely on transforming the business.
Financial incentives partially drive this emphasis on transformation. My other boards pay me for my work performed each quarter. In contrast, the vast majority of my PE-related compensation relates to the value we create when we sell the company. This mechanism helps align directors’ thinking about the timing of capital expenditures and the urgency with which we implement change.
Our governance practices also differ significantly from what I find in other board rooms. We follow agendas very loosely and our discussions are almost entirely forward looking. The business’ past performance is only relevant to the extent it informs what our next moves should be.
Let’s say that this sounds appealing to you. Then how can you get in the game?
Four tips for working with a private equity board
1. Bone up on the private equity space
When I spoke with an aspiring director recently, I found myself defining private equity jargon that was unfamiliar to her. I had forgotten that terms like “limited partner” and “draw down” might sound foreign to most. Although my work as a director focuses on the portfolio company, the broader context of how the PE firm operates helps me understand the investors’ time horizon.
Just as we learn key phrases before visiting a new country, we need to speak the language of private equity. Google is your friend here, beginning with this site.
2. Understand various private equity firms’ investment strategies
Some firms focus on specific sectors and use their specialized knowledge to make a business more profitable. Others restructure the balance sheet and sell off under-performing assets to focus management on business segments with the highest potential.
In the past, many PE shops based their decision making on a broad investment thesis. After investing, they would figure out the specifics how to make money. They had a pretty good idea of how they might create value, but they built a good portion of the plane after the wheels left the runway.
Today I see more emphasis on knowing the firm’s exit strategy before a dollar is invested. Firms have developed advanced language around strategy to the point that my board meetings sound a lot like the discussions I once had at McKinsey.
Successful directors know how an organization’s investors intend to create value. Directors must know precisely how their own strengths and expertise can support this value creation.
3. Articulate your potential contribution
Some boards recruit directors with a mindset of “we need a lawyer, an accountant and a…”. While functional and sectoral expertise is valuable, a director’s value must support a more specific aspect of the investment strategy.
Last week, I spoke with a seasoned financial services executive who had previously thought of herself as the marketing authority on her board. Prior to meeting with two PE firms, I encouraged her to explore her track record around transforming a business and communicating the resulting complexity to stakeholders. Although the director will never abandon her marketing expertise, I expect that she will help a PE firm through the complexity of rolling up three or four players in an industry.
What is your area of specialized knowledge and expertise? What is it that only you can do?
4. Build connections in your network
As far as I know, PE firms do not use search firms to populate boards. Instead, they draw from their partners’ professional networks. As I said in a previous post, there are a number of creative ways to become part of these networks over time.
As a first step, it is worth identifying people in your network who have connections to PE shops. LinkedIn is our best bet here, particularly because it reminds us of our friends’ past employment history. You may not know anyone working in PE today, but there is a chance someone in your network has helpful ties from 10 years ago.
Once you identify a contact, it’s not enough to send them an email and wait for the magic to unfold. Before I joined my PE-backed board, I knew the chair for two or three years. I did some consulting work for his portfolio companies and maintained contact every few months. It was easy to build the relationship because he’s such a smart, inspiring leader. Other relationships may take more work, but it’s work that must be done.
Check in with contacts with PE ties each quarter. Update them on your interests and learn more about their investing and fundraising activities.
Question: Have you had success with these ideas? What strategies have supported your search for opportunities with private equity boards? And others?
