Purchase multiples for Private Equity have risen 30 to 40 percent since 2010 and to create alpha in their portfolios, firms are moving to an ever more hands-on model seeking to justify the higher outlay. Leaders seeking PE investment in the future need to understand and prepare their businesses for the requirements of their funders.

Investors of course require leaders attuned to a portfolio company’s specific mission and pace, but there are additional traits that are considered crucial to success. Leaders must assess their own abilities and implement development plans to improve them. 

Ownership Mentality

The first quality that leaders can demonstrate is an ownership mentality. Developing an understanding of the drivers of the investment decision demonstrates an alignment of objectives with the firm. Being able to discuss an underwriting base case, an expected holding period and expectation of value generated all show the potential investor that you understand the interests on both sides of the table. 

Financial Mastery 

Many PE Executives want leaders of portfolio companies to have an instinctual grasp of financial metrics. With an endless increase in data-driven insights being used to propel decision-making, understanding of key metrics and the factors that influence them is vital, as is assessing how well their own finance team is performing in giving them visibility into the business. 

Team Building

Strong focus on team delivery, non-hierarchical thinking, having good communication skills and the ability to foster collaboration are all important, but in this sense we are thinking about assembling the best team possible. Being close to the investment thesis and sources of value help to assess performance of the existing team and quickly move on members that don’t fit with the next stage of development. Responsibilities will go beyond C-suite, reaching across ‘level 2’ positions, with a focus on diversity being important to support internal challenge and healthy debate, improve decision making, and strengthen customer orientation. 

Network Leveraging

Sponsors have built significant resources to improve the operating performance of their portfolio companies, whilst the portfolio itself delivers a significant network of businesses with aligned success metrics. A key strength for any leader will be the ability to derive benefit from these resources and allies.

A key feature of the traits outlined here is that they are skills that can be developed and practised. At Colab-8 we work with leaders of early-stage businesses to develop an understanding of their existing skills and abilities and to establish and execute strategies to take them to the next level.