Cowen Partners | National Executive Search + Consulting

      CEO, CFO & CRO Recruiters

      Are You Ready For a Private Equity Investment?

      Cowen Partners is a national private equity executive search firm. Working with startups and pre-IPO companies, Cowen Partners has vast private equity and venture capital experience. Whether you are the CEO/founder of a startup or an older, privately held business, there may come a time where you and your colleagues are seeking outside capital. In an ideal world, you are doing so to grow and scale a business due to demand. On the flip side, you may be seeking capital to satisfy short- and long-term cash flow issues.

      Whatever the case may be, your campaign to raise outside capital will undoubtedly involve sophisticated investors — like private equity investors — deeply scrutinizing your current finances and potential to offer an attractive return. Essentially, if you are considering outside capital from private equity investors, you need to ask yourself one critical question:

      Are You Ready For a Private Equity Investment?

      As the president of a national executive search firm, I regularly come across scenarios where private equity firms are exerting significant pressure on their portfolio companies to conform to higher performance standards. They retain us to seek talented finance and accounting staff to improve their finances in both quantity and quality. Many of these scenarios require us to replace the existing CFO with a private equity experienced candidate.

      So why do private equity firms do this? As alluded to by Buffett, it is to protect their investment. Especially if the private equity firm is investing eight or nine figures into your business, the stakes are extremely high.

      Here, I’ll explore this phenomenon in more detail. Specifically, I will discuss some significant changes — in terms of reporting standards and personnel — that private equity firms require of portfolio companies.

      Private Equity Raises The StakesCase Studies | Executive Search Firm in Seattle & Portland | Cowen Partners

      Regardless of the funding source, companies that obtain outside capital are playing with raised stakes. Lax compliance standards or incomplete financial statements are simply out of the question. Portfolio companies become stewards of capital, and they must ensure that outside investors are clear about how that outside capital is being allocated.

      Often, portfolio companies provide this clarity through more detailed financial statements. In fact, this increased level of detail may be a compulsory part of the fundraising round. As just one example, many private equity firms require their portfolio companies to have a hard close every month. Many private companies forego this practice every month, instead choosing to do it every quarter or every year. While they may prefer a soft monthly close because it places less of a burden on their accountants, private equity firms will disagree. If the portfolio company does not have the resources to quickly implement a monthly close, it may create some significant challenges within the organization.

      Along with a monthly hard close, private equity firms often institute stringent financial planning and analysis (FP&A) requirements. These FP&A requirements might include things like cash flow projections, EBITDA (earnings before interest, tax, depreciation and amortization) bridges and more. Again, the ultimate purpose of these stringent FP&A requirements is for the private equity firm to have a granular level of detail on the business. It wants to ensure that the portfolio company is on track to achieve certain key performance indicators, which will appear as a sufficient return on invested capital.

      Finally, audit requirements may be a rude wake-up call for portfolio companies. A good number of private companies may not have completed a comprehensive audit. When taking on private equity capital, however, these companies will have to invest a significant amount of time and money into adequately completing the audit. While this is especially true for the first audit, ongoing audit requirements are not insignificant.

      New Management – CEO & CFO Replacements

      For a small company with lax financial controls, the requirements mentioned above can be daunting. An inexperienced CFO may do everything they can to comply with the requirements, but it may not be enough. Private equity firms won’t hesitate to bring in more experienced financial professionals via a private equity executive search firm who can not only comply with these reporting requirements but help ensure that the portfolio company delivers the expected internal rate of return.

      In the case of private equity firms seeking experienced CFOs for their portfolio companies, in my experience as a private equity executive recruiter, they generally look for candidates with strong technical accounting backgrounds who operate at a higher level. Not only that, but the individual must be able to execute the company’s growth plan, including mergers and acquisitions, and fit well within the culture of the company. As you can guess, it requires a talented individual to bridge the gap between a CEO/founder and the demands of their new private equity partner.

      Get Ready For Private Equity!

      Raising outside capital can be exciting for any growing company and its founders. It is easy for emotions to take over as company executives contemplate how that capital will take their businesses to the next level. That said, taking outside capital — especially capital from private equity firms — isn’t easy. There are certain reporting and compliance requirements that key executives may not anticipate.

      Ultimately, when taking private equity capital, “What got you here won’t get you there,” as executive coach Marshall Goldsmith would say. Portfolio companies will need to implement comprehensive reporting procedures, FP&A and internal controls so that their private equity investors can closely track their investment. And if the existing management cannot do so, private equity firms will find someone who can.

      Founders and executives must face this reality before taking on private equity funding. Setting appropriate expectations can avoid some nasty surprises in the future.

      Private Equity Executive Search Firm

      Cowen Partners is a national executive search and consulting firm. Our clients are both small and large, publicly traded, pre-IPO, private, and non-profit organizations. Clients are startups and pre-revenue to $600 million dollar private equity owned companies. Successful placements span the entire C-Suite and include VP and director level leadership roles.

      Cowen Partners Executive Search has particular expertise in the following areas: accounting and finance, IPO preparation, SEC reporting, corporate tax, financial institutions (banks and credit unions), enterprise software sales including technology, SaaS, and managed services, and rapid growth private equity/venture capital backed deals.

      In addition to executive search, Cowen Partners Consulting offers CEO succession planning and CFO consulting for middle market companies on an interim, project, and fractional basis. CFO consultants provide forecasting, financial cashflow, treasury, software implementation, and M & A services. Cowen Partners maintains a multimillion dollar payroll service for even the largest of client consulting and staffing engagements.

      With our proven processes and guaranteed results, we have successfully placed hundreds of candidates in industries including technology, commercial real estate, healthcare, financial services, sales and finance.

       

      Check out our industry-leading resources to see why Cowen Partners is a 5-star retained executive search firm in New York City, Chicago, Seattle, Dallas, Los Angeles, and beyond: