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Private Equity Operating Partner

In recent years, private equity (PE) firms have isolated operational improvement in portfolio firms as a frontline tactic, shifting focus away from financial engineering or excessive leverage. As a result, the role of operating partner has become key to PE firms’ investment thesis, which has led to a rise in the relevance and demand for the position.

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This trend has only continued with the advent of COVID, and its accompanying challenges as firms provide support to ailing portfolio companies or help identify growth opportunities in a shifting landscape.

However, while the remit of operating partners in portfolio firms is often clear: value creation through operational improvement, there’s less consensus on how the role fulfills this goal and what an ideal candidate for the position looks like. Here, we share insights on what an operating partner does and the key attributes of a good fit for the role.

What Does a Private Equity Operating Partner Do?

An operating partner is an experienced business executive who works with PE portfolio companies to assess worth pre-investment and optimize value post-investment. They bring an established track record of operations or sector-specific experience to portfolio companies, where they help tighten operations while driving the PE firm’s investment thesis.

An operating partner functions as an on-demand resource for companies that have accepted PE investment. Their job is to contribute to portfolio companies’ operational and strategic development by providing access to their functional knowledge and Rolodex of industry contacts. In addition, they serve as coaches to the company’s executive team, ensuring they have the tools, processes, and people to meet the PE firm’s investment thesis.

As mentioned earlier, while it’s clear what operating partners do, how they do it is often fluid. They may be involved in different organizational functions, from marketing to recruiting, operations, finance, or talent development & acquisition. They will typically have a background in one or more of these functions.

Due to this, the requirements for the role vary and will often be determined by the specific needs of the company and any gaps that exist in the management team.

Is an operating partner different from a venture partner?

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Venture partners and operating partners perform entirely different roles for PE firms. Unlike operating partners whose job is to lead on-the-ground improvement in portfolio companies, venture partners bring in the portfolio companies in the first place. They lead the PE or venture capital firm’s core deal team, and they are responsible for the fund’s overall direction and investment decisions. Operating partners function as the primary link between the PE firm and its portfolio companies, functioning as expert adviser to the fund and its companies.

Likewise, where venture partners take a long-term view on the performance and integrity of the fund, operating partners have a narrower scope. Their remit is to improve portfolio companies in the short term and help pave the way for a profitable exit by the PE firm.

As a result, their primary focus differs. The venture partner focuses on fund performance and investor returns, while the operating partner drives growth and performance in portfolio companies.

Who does the operating partner role fit?

As the role involves more advice than leading, the role of operating partner best fits candidates that are okay with not being in the driving seat. While some PE firms insist on a board seat for their operating partner, the eventual role of the expert is as strategic advisor, not necessarily business leader.

If the operating partner does hold a board seat or some other functional leadership role within the company, it is usually on an interim basis. Besides, there’s an argument that holding a board seat or any functional leadership position within the portfolio company might be more hindrance than help. The operating partner dynamic often requires maintaining a complex mentoring relationship with the management team, and juggling a board member role on top can be too much.

Overall, successful candidates recognize the role to be one of coach and advisor, rather than being the one leading the charge. However, if a candidate is more accustomed to leading than advising, then they might struggle in this position.

What does the ideal candidate need to excel in the role?

As we have mentioned above, one of the features of the operating partner role is the flexibility of requirements viewed as a must-have for top candidates. In fact, in a sense, it may be said that there are no must-have requirements for the role – it all depends on what the portfolio company needs.

Nevertheless, one minimum requirement shines through in the role of the operating partner: communication skills. At its core, the role of an operating partner revolves around their ability to provide valuable advice and guide executive teams to success. Their work is subtle, and as influencers, they require smooth communication and social skills to keep the management team on target and resolve any differences between the company and PE firm.

Apart from communication, other skills might come to the fore as nice-to-have for operating partner candidates. They include:

Management experience: Generally, personal experience as a CEO or executive in a portfolio company can be helpful for an operating partner. They can provide advice from a place of empathy, which helps them understand the pressures on the management team and determine what expectations are realistic and which ones aren’t. Besides, the executives are likely to engage better with a strategic coach who has been where they are.
Board experience: Likewise, previous board experience indicates a candidate who knows what it’s like to hold a CEO and executive team accountable, support them for success, and inspire greater performance levels.
Consulting experience: Due to the nature of their job – consultants know how to deliver complex advice to clients – a candidate with consulting experience might have better tools to succeed in an often difficult position.
Tech exposure: Technology is shaping industries in endless ways and is key to the opportunities and demand areas currently opening up. Portfolio companies that wish to go on the offensive might benefit from operating partners with tech experience who can help them take advantage of disruption to generate added value.

Of course, each PE firm will likely make an individual assessment of what skills and capabilities are required and how the candidate helps further the fund’s strategic goals.

Private Equity Operating Partner Conclusion

Ultimately, the role of an operating partner is one of strategic advisor and coach, and the job is underlined by the need to provide subtle leadership and influence while steering the portfolio company towards the goals of the PE firm. Candidates who can find the sweet spot in this often complex arrangement will likely find success.

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Private Equity Operating Partner | Private Equity Executive Search