Guest post by Ian Foley, Venture Partner at Xenon Ventures
In the last 20 years, private equity has added operating partner roles to their management teams, we are now seeing the same trends occur at earlier stage investing firms. An excess of capital and innovation is now requiring investment firms to support their portfolio companies with human resource, marketing and sales to help drive organic growth.
Henry Kravis, co-founder of the firm KKR, famously remarked: “any fool can buy a company, just pay enough.” KKR’s strategy is to use a combination of its investment and operating experience to “enter situations where it can come in with a plan to help management improve the business.”
KKR’s accomplished this by creating an affiliated organization, called KKR Capstone, which today has 50 operating executives. Other competing private equity firms have followed suit, including Cerberus Operations and Advisory Company, which has 110 employees, and Texas Pacific Group (TPG), which has around 100 employees focused on operating roles. Private equity firms also saw these operating teams as another way to differentiate their investment strategies from the passive private equity groups large banks had started (e.g. Barclays Private Equity).
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