Forrest Gump once said "Life is like two sides of a balance sheet."
Life is easy when the right side of your balance sheet is structured as patient capital - this allows the investor to intentionally deploy capital, with a calm and reflective mindset.
Many private investors obsess over the left side of their balance sheet. Professionals early on are expected to obsess over investment diligence, graduate to managing PortCo issues, and eventually source and execute deals.
But it's not excellence in asset selection that makes a great Private investor, it's embracing the value of match funded / long-duration liabilities / capital. In fact, match funding is one of life's secrets.
If you make a reasonable bet and make a private investment, then if trouble occurs, the investment firm uses it's collective resources to address the problem or find a new area of growth. If the LPs ever hear about it, it's framed as a marketing example of how PE firms add value - a justification for the fees.
In contrast, in the public markets, if a material problem occurs, an 8-K tape bomb tanks the stock, a stank attaches to the PE and management team, the shareholder base rotates, and a year later, things are generally fixed... however stockholders have had sleepless nights, people have been hired and fired - drama and reactivity occurred publicly.
Often newer PE Partners / Principals kill deals with the skeptical eye of a public equity analyst. This is a mistake. With long-duration capital, you get the free call option to fix problems and discover new areas of growth. If you kill the deal for fear that "something" might go wrong, you forego all of this optionality afforded to you by the right side of your BS.
As you realize the value of your funding structure, how can you find ways to make deals happen? A crummy operating business or a high price are career killers, but so is killing one deal after the next!
Patient capital allows you to calmly and intentionally analyze your opportunity set, and swing the bat at pitches that make sense. Every investor will have PortCo challenges -- it's part of adding alpha.
So rather than sitting in the stands, how can you find a way to confidently take the plate, breathing easy, and swing at more balls that offer a reasonable chance of success?
#privateequity #growthequity #venturecapital #investmentbanking
