To the new class of associates entering the private equity industry over the next few weeks:
Congrats! Your pockets are filled with that last i-banking bonus and your hopes are high about the chances of a better work-life balance. You can now officially look down on all your friends who got stuck — I mean stayed — in banking. Their lives are over as yours have just begun.
However, there are some dangers ahead as you start your new career … well, at least the next two years before you get pushed off to business school. Learning your new office lingo is the key to avoiding embarrassing situations with your new bosses. To help, I put together a short glossary of key terms to give you a leg up.
Proprietary (adjective /prə-prī-i-te-rē/)
At a PE fund, proprietary is all about the deal flow. And, according to what your new bosses tell their limited partners, it’s the only kind of deal your firm does. In reality though, finding a deal that isn’t being shopped by an investment bank is like finding the lovechild of a white whale and an albino tiger. Just don’t say that out loud. As far as you’re concerned, anything short of a company announcing it’s sale on a billboard in Times Square is a proprietary deal.
Proactive (adjective /prō-ˈak-tiv/)
In private equity, you can’t be reactive, you must be proactive in everything you do, especially deal sourcing. So how do you find all those proprietary deals? You proactively cold call trade show attendee lists handed to you by a surly VP or, even better, you blast-email the entire Inc. 5,000 list. This list comes out every October, so you only have to wait a couple months before you can brag to all your i-banking friends about what a great telemarketer you’ve become since joining private equity.
Value Add (verb /val-yo͞o,ad/)
Here is a great part about your new job — you get to regularly second guess your portfolio company management teams, and your investors pay you for it. This is what passes for “adding value” because, really, none of you have ever run companies before so what else can you do? Try starting with these classics: “Have you thought about raising prices?” and “There is this great guy I’d really like you talk to/meet with.” If those fail to add sufficient value, just pile on the debt. That always works out in the end.
Operating Partner (noun /äpə-rāt-ing,part-nər/)
This is the guy who can probably add the most value inside your portfolio, but no one listens to him. Ever. The portfolio CEOs think he’s trying to take their jobs, and your partners don’t quite know what to do with him because he doesn’t find deals for them. While he’ll get a lot of attention at your annual meeting, he rarely sees the light of day the rest of the year. But if you want to know what’s really going on at your firm, get a couple bourbons into him the next time you are out at a portfolio company together. He’ll tell you everything!
Offsite (noun /ȯf-sīt/)
Usually a few days in a primo location where the partners plan to solve all the big strategic and personnel issues facing the firm but just wind up playing golf, carving some fresh powder and deferring any real decisions to next year’s offsite. By the way, you’re not invited.
Succession Planning (verb/sək-ˈse-shən,plan-ing/)
This is what the younger partners at your firm hope is being discussed at the offsite. It isn’t. Succession planning is when the successful-but-aging founding partners of your firm voluntarily give up their fee income and carried interest to the next generation and promise to “step back” even though they aren’t ready to retire, have no hobbies and still have their names on the door. What? Why would they ever do something like that? Oh, never mind then.
Spinout (verb /spin-au̇t/)
This is what happens when too many offsites go by without any succession planning.
“I have a meeting in Westchester” (verb /gälf/)
This means your bosses are playing golf, so make sure to cover for them when one of the lenders calls to talk about that upcoming covenant default. You can really insert any local suburb or small city to fit your firm’s specific location. When I was an associate in Chicago, any Friday morning meetings in Milwaukee during the summer were highly suspicious. You can’t join any meetings in Westchester unless you are such a golf prodigy you make your boss look good in front of the members at his club. The rest of you have to stay back with all those proprietary deals you’re chasing.
I hope this was a good introduction to the unique lingo of the typical private equity fund. In our next session we will cover intermediate topics, such as how to behave at the annual meeting (hide) and when to correct a partner in front of other partners (never). Until then, enjoy your week off between banking and PE and savor those cold calls!
Devin Mathews is a Managing Partner at Chicago Growth Partners. He also blogs about private equity and co-hosts the Private Equity FunCast (www.pefuncast.com), the industry’s only PE-focused podcast which recently surpassed 30,000 downloads. You can reach him at firstname.lastname@example.org, follow him on Twitter @devinmathews and join the FunCast army @pefuncast.
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