How To Get Conviction around a deal / How to stop killing Deals?

How do you stop killing deals that end up looking great months later in hindsight?

This is a common frustration I hear from Private Equity and Growth Equity clients.

So how do you get the conviction to swing at more pitches?
.....

The one merit of hedge funds is that you learn to advocate for a position, and live with the sleeplessness having risk on early in your career. Part of the skillset is learning to pick yourself up and try again.

Conversely, PE/GE professionals grow up focused on excellence in work quality. It's an extension of 4.0 GPA college / MBA where superior work quality and work ethic garner respect. While this foundation theoretically insulates a PE franchise from having an untrained risktaker at the Partner level, it deprives the PE VP/Principal from acclimating their nervous system to the feeling of risk on.

It's a weird moment when suddenly, you're the one leading the charge! And seemingly, the consequence of a negative outcome is all on you. It's a new feeling, and paralyzing to some.

Lowering your standards is not an option. This would melt your DNA. Instead:
1. Recognize: it's not all on you. Your committee exists to invest as a group. Your decisions are made together. While the deal has your name next to it, everyone is on the hook if it goes poorly. They are all there to help find potential problems before the purchase.

2. Abandon "Risks and Mitigants" --> Instead OWN THE ELEPHANTS (risks) and FEAR MAP... if X could occur,
*** What would you do if that happened?
*** Would you just lay there and let the worst case play out, or would you find creative ways (with your IC) to remedy the situation and improve your position?
*** Write a two column table, if bad thing happened (left), what are all the ways you'd deal with it over time? (right)

re#2, the reptillian mind over-handicaps the a) likelihood of a bad outcome and b) final severity of that outcome. In reality, the likelihood is much lower, and can be made less severe through active management.

The PE illiquid liability funding structure is designed to allow you to deal with major problems in private!

In reality, the worst things that happen during an investment won't be in the "risk" section of the IC memo -- it will be something you never saw coming.

In order to swing at more pitches, reassure yourself you make the best decision based on the information you have at the time of the investment, and have faith you can use your creativity to find your way out of any issues that arise -- this is why you're earning all those fees!

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