five lessons about private equity

PRIVATE

DO’S

Quick

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EQUITY

DON’TS and Excerpts from Mistakes Millionaires Make, by Harry Clark

Take the Entrepreneurial Risk Assessment at: www.pathwaypartnersllc.com

http://www.pathwaypartnersllc.com/

My name is Harry Clark and I thought I had it made.

By 2004, I had:

founded two INC. 500 companies

450 employees

a $100 million net worth

BUT I LOST

EVERYTHING

I was thrown

by a notorious

private equity

firm

over a barrel

On the Friday before funding the $20 million deal,

they asked my CFO to use

our last remaining $1.5 million in cash

to pay down our payables.

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On the Monday we were set to close,

The owner of the private equity firm

called me and said

Harry, we love your company

and we are all set to make the deal.

However, it seems you are out of cash

and you need us more than we need you.

So instead of $20 million for 20%,

we want 80% of the equity.

My jaw dropped

I just got

SET

UP by these greedy

and unscrupulous

bastards

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I rejected the offer

out of principle, as

I didn’t want to see

my great company

fall into their hands.

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Stupidly,

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That was a

All my 450 employees

were left without jobs.

$25 million in personal assets,

BIG

And I lost everything:

MISTAKE

a 20 year marriage

and 10 years of my life spent in legal battles.

NO

RESOURCES

I also realized that there are

to help entrepreneurs avoid

common mistakes (like mine) once they made it

ENTREPENEURS

That lead me to interview

30

CRASHED

that

spectacularly

CLIMBED

and

back up

SHARE

I want to

what I discovered

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I heard many

HORROR

STORIES

related to

private equity firms

PRIVATE

DO’S

So here are 4 quick

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EQUITY

DON’TS &

when it comes to

#1

RELATIONSHIPS



CONNECTIONS

Use private equity firms

with which you have


Perhaps your advisory board members or CFO

have existing relationships with reputable firms.

Or maybe your lawyer or accountant have

longstanding relationships with some firms.

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In any case, I highly recommend that you

USE YOUR NETWORK

as much as possible to find reputable firms.

#2

GUYS

Photo via Warner Bros.

WHITE WITH HATS

Photo via Warner Bros.

In the finance industry,

we differentiate

the good guys from

the notorious guys

in the industry as

the ones with white hats

private equity firms

have fantastic reputations as

with

Photo via Thinkstock Photos

Many of the

HIGH

HONEST

PEOPLE

MORALS

Photo via MTV

Don’t get caught up

with a notorious company

that just had a

hugely lucrative IPO exit

or some well known

brand names

#3

EXCLUSIVITY

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Photo via Redrope.co

Most private equity firms will require exclusivity during

due diligence, meaning you cannot talk to any

other private equity firm for the specified time period

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The reason for the exclusivity is that it can easily cost

the private equity firm $500,000 to do the due diligence

and they can’t afford to lose the deal once its started.

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However,

time might be of the essence

to close the deal.

For example, when your

company is growing fast,

cash is evaporating

NOTHING

and soon you’ll have

LEFT

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either

REFUSE

the exclusivity

In this case,


Or require the private equity firm to

LEND YOU UPFRONT

the amount needed through the due diligence period.

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As in my earlier personal example,

you don’t want to be in a

DIFFICULT

at the end of your due diligence.

SITUATION

#4

GUARANTEES

PERSONAL



One of the best reasons for

raising private equity

is that it will almost invariably

remove you from having

PERSONAL

GUARANTEES

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Personal guarantees

for leases, loans, vendors and bonding

are the most common reasons

WIPED

why entrepreneurs get

OUT

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your personal guarantees will typically be

removed from all obligations

After closing a private equity transaction,


frees you up to grow the company faster

This eliminates your downside risk and

which benefits the private equity investors

and take more risks,

Learn more by reading my up-coming book

Or by taking the

Entrepreneurial Risk Assessment Survey at

http://pathwaypartnersllc.com/

Or by subscribing

And remember: to my blog

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