Founder Focus

How to Spot Red Flags in a Private Equity Firm

Whether it’s friendships, romantic relationships, or private equity deals, it’s the horror stories that seem to readily circulate and leave an impression.
So, if you’re a founder who’s worried about entering into a deal with a PE firm, we’ve compiled some red flags to look out for.

Red Flags in Private Equity

 

Finding the right investment partner can be stressful when you have so much on the line. Fortunately, you can spot most red flags in the beginning or even before an initial conversation. Here are some warning signs:

1) They’re not transparent.

If it seems like the investor is not forthcoming, they’re withholding information, or they’re asking you to trust them without sharing information, that’s a red flag. It’s difficult to develop trust when someone may be hiding something.

2) Your values don’t align.

If you don’t like the way they treat or talk about people, it’s a sign they’re not a good fit for your business.

3) They don’t have experience in your industry.

Experience in your industry is essential to understand how to improve business processes. Lack of understanding or not having the right advisors can create obstacles during the deal process. It’s also important that they have worked with founder-led companies.

4) You don’t have a shared vision.

If you don’t want the same things for the business, that’s a recipe for conflict down the road. Understanding each other’s vision allows both sides to achieve a better result.

5) They don’t cultivate relationships.

If private equity investors are not willing to get to know you or your business before jumping into the numbers, that’s a sign they may only view businesses as dollar signs. Most founders want to make sure that the people in their company are going to be treated well. If an investor hasn’t built positive relationships in their past deals, that’s a sign that they’re not going to be concerned about the relationship with you and your employees.

6) They don’t communicate.

Whether it’s an inability or unwillingness to communicate, this is a definite sign of trouble. Without communication, you won’t know if you share goals, values, or vision. If you don’t have open conversations about your goals, you won’t be in a position to get the kind of deal you want.

7) They want to change everything.

Why would a firm want to invest in a business that they want to remake completely? This red flag is especially troubling if there is something you don’t want to change. For example, if you would like a family member to stay in the business, that should be something they are willing to respect and consider.

So how do you find out what a private equity investor is really like? They’re probably not going to tell you that they’re hiding information or that they’re hard to work with, so you’ll need to do some research and ask some questions.

 

Ask around. 

Ask the firm for references and learn about their reputation. Asking other firms what they think about the investors can reveal a lot. 

Look them up. 

Do some online sleuthing. Check out their website and social media. Find news about their firm and find out what their experience is in your industry and working with founders. 

Start a conversation.

You’ll learn a lot about shared goals and values from a first conversation — and you’ll find out whether they’re interested in learning more about you. An initial conversation should be about getting to know each other and gaining an understanding of how the founder views their business.

 

We invest in RELATIONSHIPS

Successful deals boil down to each side being a good partner. Trivest has been in business for more than 40 years with the mindset that we’re pro-founder and pro-family. We’ve made over 400 investments in family and founder-owned businesses, and many founders have then invested in Trivest funds. These ongoing relationships demonstrate that the founders felt good about our investment decisions as well as how they were treated in their deals.

Though some failures are inevitable, they have been few and far between. We are transparent from the beginning so that we can identify problems early. We want founders to know as much about us as possible. When we provide our reference list, we might point out transactions that are more relevant to their business, but we want founders to have all the information they need as early as possible.

Trivest is focused on building and nurturing businesses, and we know that we’re not suitable for every founder. However, we also know how to determine that fit in the beginning. Even if it’s not a good match or the right time, a firm like Trivest can still provide guidance for what you can do to reach your goals down the road.

 

Want to sell your business, but have concerns? Read “Why Private Equity Gets a Bad Rap” to learn more about identifying good firms.

1 Comment

Comments are closed.

Previous
Independently Sponsored: Atlasview Equity
Next
BluWave Recognizes Trivest as a 2023 Top PE Innovator
Privacy Settings
We use cookies to enhance your experience while using our website. If you are using our Services via a browser you can restrict, block or remove cookies through your web browser settings. We also use content and scripts from third parties that may use tracking technologies. You can selectively provide your consent below to allow such third party embeds. For complete information about the cookies we use, data we collect and how we process them, please check our Privacy Policy
Youtube
Consent to display content from Youtube
Vimeo
Consent to display content from Vimeo
Google Maps
Consent to display content from Google
Spotify
Consent to display content from Spotify
Sound Cloud
Consent to display content from Sound
Save
We use cookies to enhance your experience while using our website. To learn more about the cookies we use and the data we collect, please check our Privacy Settings.
I Accept