By Graham WinfreySenior editor, Inc.
Inc.’s inaugural list of founder-friendly private equity firms highlights shops that treat entrepreneurs as partners and operators–rather than as part of the furniture.
Private equity firms have been called all kinds of nasty names over the years: asset strippers, corporate raiders, vulture capitalists. Don’t be deterred by these labels. The PE firms making headlines over high-profile corporate bankruptcies such as Toys “R” Us are rarely the same investors who back small businesses. In fact, more and more companies are taking private equity investment. In the U.S., the number of PE-backed businesses is up 25 percent compared with 2014, according to research firm PitchBook. So don’t forget to call PE firms something else: business builders.
PE by the numbers:
$752 billion Amount of uninvested capital that PE companies have at their disposal. That’s a record, up from $469 billion in 2014.
25% Increase from 2014 through 2018 in the number of private equity-backed U.S. companies, up from 6,177 to 7,737.
10.1% Revenue growth at PE-backed middle-market companies in 2018. Non-PE-backed middle-market companies grew more slowly that year–7.9%.
Source: The National Center for the Middle Market at the Ohio State University
$713B The total value of private equity deals in the U.S. in 2018. That figure has increased by 35 percent from 2014.
For some private equity firms, investing in founder-led businesses is a big part of the strategy–if not the strategy itself. Before you test the private equity waters, however, you should first take a hard look at your company. “Founders need to think about what they want out of a PE fund,” says Nick Leopard, founder, and CEO of Accordion Partners, a financial consulting firm that works with private equity-backed companies. Some entrepreneurs turn to private equity to help execute their vision; others bring in PE firms to collaborate on new strategies or to finance acquisitions. “Doing that self-inspection first is really important,” Leopard says.
Private equity firms are now sitting on a record amount of uninvested capital, which is good news for businesses seeking funds. That cash pile is prompting those firms to expand their purview and do deals with businesses that just five years ago would have been unlikely targets, according to Tom Stewart, executive director of the National Center for the Middle Market. “They’re investing in younger, earlier-stage companies, and they’re more willing to take a minority stake than they were because they’ve got to put the money to work,” Stewart says. “It’s more of a sellers’ market.”
Family businesses are often strong can¬didates for outside investment. “It’s a rare family that can continue to evolve and grow a business without help from a third party,” says Dave Brackett, co-founder, and CEO of private credit manager Antares Capital, which has helped finance acquisitions for more than 400 private equity firms. “You constantly need to innovate and bring people on board.”
Selling a meaningful stake in your company can be life-altering. That’s why we’ve created this list of founder-friendly private equity firms. We identified firms that have invested in founder-led companies, gathered data on how their portfolio companies have grown and asked entrepreneurs to tell us about their experiences–including what any founder should know about outside investors.
That research has yielded our list of 50 firms with a track record of successfully backing entrepreneurs. Think of it as the first step in doing your own due diligence.
The Top 50 Founder-Friendly Private Equity Firms
Accel-KKR, Menlo Park, CA, $15M-$200M annual revenue
Alpine Investors, San Francisco, CA, $5M-$100M annual revenue
Berkshire Partners, Boston, MA, $100M and above in annual revenue
Blue Point Capital Partners, Cleveland, OH, $20M-$300M annual revenue
Brentwood Associates, Los Angeles, CA, $25M-$500M annual revenue
Bridge Growth Partners, New York, NY, $50M-$500M annual revenue
CCMP Capital, New York, NY, $250M-$2B enterprise value
Clayton, Dubilier & Rice, New York, NY, Typically invests $100M and above
Clearview Capital, Stamford, CT, $4M-$20M EBITDA
Cortec Group, New York, NY, $40M-$300M annual revenue
Endeavour Capital, Portland, OR, $25M-$250M annual revenue
Frontier Capital, Charlotte, NC, $10M-$30M annual revenue
General Atlantic, New York, NY, $25M-$300M annual revenue
Genesis Park, Houston, TX, $5M-$100M annual revenue
Great Hill Partners, Boston, MA, $25M-$500M enterprise value
Gridiron Capital, New Canaan, CT, $75M-$650M enterprise value
JMI Equity, Baltimore, MD, San Diego, CA, $10M-$50M annual revenue
JMK Consumer Growth Partners, New York, NY, $2M and above in annual revenue
Kayne Anderson Capital Advisors, Los Angeles, CA, $5M-$50M annual revenue
LLR Partners, Philadelphia, PA, $10M-$100M annual revenue
Main Post Partners, San Francisco, CA, $25M-$250M annual revenue
MidOcean Partners, New York, NY, $100M-$500M enterprise value
Mountaingate Capital, Denver, CO, $5M-$25M EBITDA
Palladium Equity Partners, New York, NY, $10M-$75M EBITDA
Pamlico Capital, Charlotte, NC, $10M-$150M annual revenue
Permira, Menlo Park, CA, New York, NY, $200M-$5B enterprise value
Prospect Partners, Chicago, IL, $10M-$75M annual revenue
Quad-C Management, Charlottesville, VA, $75M-$500M enterprise value
Ridgemont Equity Partners, Charlotte, NC, $5M-$50M EBITDA
The Riverside Company, New York, NY, $400M enterprise value
Sagemount, New York, NY, $15M-$250M annual revenue
Serent Capital, San Francisco, CA, $5M-$100M annual revenue
Shamrock Capital, Los Angeles, CA, $20M-$300M annual revenue
Shorehill Capital, Chicago, IL, $3M-$15M EBITDA
ShoreView Industries, Minneapolis, MN, $20M-$225M annual revenue
Sole Source Capital, Santa Monica, CA, $35M and below EBITDA
Source Capital, Atlanta, GA, $10M-$75M annual revenue
Spell Capital, Minneapolis, MN, $5M and above in annual revenue
The Sterling Group, Houston, TX, $50M-$750M annual revenue
Stripes, New York, NY, $10M and above in annual revenue
TA Associates, Boston, MA, $100M-$250M annual revenue
Tecum Capital, Wexford, PA, $3M-$15M EBITDA
Thomas H. Lee Partners, Boston, MA $250M-$2.5B enterprise value
Tower Arch Capital, Draper, UT, $20M-$150M annual revenue
TPG Growth, San Francisco, CA, $15M and above in annual revenue
Trilantic North America, New York, NY,$100M-$1B enterprise value
Tritium Partners, Austin, TX,$5M-$100M annual revenue
Trivest Partners, Coral Gables, FL, $20M-$200M annual revenue
TSG Consumer Partners, San Francisco, CA, Declines to disclose
Wynnchurch Capital, Rosemont, IL, $50M-$1B annual revenue
Note: “EBITDA” refers to earnings before interest, taxes, depreciation, and amortization. “Enterprise value” refers to the total value of a company.
From the July/August 2019 issue of Inc. Magazine