In this episode we discuss: What can VC and PE backed operators learn from each other? We are joined by Sam Smith, the founder & MD of PepTalks, a training provider for private equity backed CEOs and their management teams.
We chat about the following with Sam:
• What are the types of PE companies?
• How are company valuations determined?
• How does the commercial model work between PE companies and LP’s?
• Can you shift track and move from VC-backed to PE-backed?
• How does a PE firm structure funds when they invest in an organisation?
• How does that structure impact the ability for the management team to make money?
• How do share options work in VC-backed companies?
• What happens to the management team's equity when a second PE company buys the company?
• What does a successful COO look like in PE-backed companies? How does that contrast versus VC-backed?
• How do VC-backed companies successfully ramp up headcount so quickly?
• How do you engage and motivate employees in PE-backed companies versus VC-backed?
References
• Sam Smith ( / samsmithpeptalks )
• PepTalks (pep-talks.co.uk/)
Biography:
Sam Smith is the founder of PepTalks, a peer to peer training provider for private equity backed CEOs and Management teams. Founder of Marble Hill Partners an exec search and interim management consultancy which was sold to Henley Insights Group in September 2021.
Summary:
• Career relevance and identity after unexpected death. 0:05 (otter.ai/u/todX7dcQwceOodhXaU...)
• Bethany struggles with processing unexpected death of a friend, leading to a difficult weekend.
• Bethany and Brandon discuss feeling less relevant in their careers as they age, with millennials taking over management positions.
• Identity, ambition, and financial freedom. 3:35 (otter.ai/u/todX7dcQwceOodhXaU...)
• Bethany: Realized identity wasn't tied to work after leaving peak role, causing discomfort & self-reflection.
• Brandon: Ambiguity of mattering in work life vs. personal identity, with age & finite time, leads to essential questions.
• Bethany and Brandon discuss the importance of financial freedom and its impact on their lives, including the ability to think long-term and prioritize personal growth.
• Brandon highlights the importance of allocating time for networking and learning, even when not directly relevant to work, to maintain personal direction and growth.
• Entrepreneurship, private equity, and networking. 9:02 (otter.ai/u/todX7dcQwceOodhXaU...)
• Bethany and Brandon discuss networking and success in business with Sam Smith of pep talks.
• Private equity fundraising and investment strategies. 11:07 (otter.ai/u/todX7dcQwceOodhXaU...)
• Sam Smith explains the commercial models of private equity, including the need for return on investment and the importance of valuation based on EBITDA multiples.
• Bethany asks about the recurring revenue of a 20-500 million enterprise value business, and Sam provides examples of private equity funds for different transaction sizes.
• Sam Smith outlines a plan to raise £500 million for a private equity fund, highlighting the importance of having a clear investment strategy and track record of success.
• The fund aims to secure commitments from 20-30 institutional investors, with the remaining £450 million coming from the general partners' own pockets.
• Private equity investing and expectations. 16:12 (otter.ai/u/todX7dcQwceOodhXaU...)
• Sam Smith and Bethany plan to manage a private equity fund for 10 years, investing and returning money to investors over that time.
• The fund will have a lifecycle of 11 years, with 3-5 exits within the first 5 years, and then raising another fund in transition.
• Brandon: Has seen venture-backed companies transition to private equity ownership, but rare due to cash generation and profitability requirements.
• Sam Smith: Private equity investors expect at least a two times return, unlike venture capital which takes a higher risk for potential astronomical returns.
• Private equity investing and debt structures. 20:41 (otter.ai/u/todX7dcQwceOodhXaU...)
• Management teams in private equity firms can make significant sums of money if they deliver growth and meet targets, while VC firms have a higher risk of failure and lower potential returns.
• Sam Smith discusses raising £500 million for private equity deals, with £40 million going to banks or debt funds and £59 million structured as a loan note with compounding interest.
• Smith explains the importance of capturing senior debt and structuring loan notes to minimize interest payments and maximize returns.
• Private equity investment and r...