If you’re a startup or established company, you’re likely to get inbound calls about a private equity investor that would want to look at your business. What’s the catch?
I remember with my first startup when we started to get the “inbound interest” call from Private Equity firms. At first, it was very flattering! People liked us/me and wanted to (I thought) give us money! Why else would they call?
So what is the deal with those inbound calls and emails? They aren’t as flattering as you might think.
Private equity groups (PE or PEGs) regularly deploy their junior associates to cold call companies to qualify them based on revenue and profit (EBITDA). They generally are pulling lists based on geographies, industry groups, and trade news. So you’ll see a spike in this type of inbound calls after you have a positive press article come out.
Generally, the PEGs have a thesis of investments in your specific vertical or industry, for example, enterprise tech companies or electronic manufacturing.
Early in the phone call, they are going to be asking you about your employee count or top-line revenue and growth. Industry data has some standard “revenue per employee” numbers and they can use that as a proxy for top-line revenue. They may just ask for profitability numbers on the first call.
If your responses are interesting, they will suggest that they schedule a call for you to talk with one of the partners, you probably thought you were talking to a partner up until that point!
The Private Equity industry is great at data analysis and typically have way more MBAs and spreadsheet jockeys than the venture industry. What they know better than any of us founders is how to get a great deal on purchasing a company and orchestrate half of their returns in from the initial purchase price.
We typically see a deal with an early offer like this go up by 50% by running through a competitive process.
So, take the call (and the compliment) and see what the PE is thinking for value! Then run a process and get the price up!