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
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 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 candidates 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.
THE TOP 50 FOUNDER-FRIENDLY PRIVATE EQUITY FIRMS
| PE FIRM | U.S. HQ | SIZE OF TARGET PORTFOLIO COMPANIES |
|---|---|---|
| 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 |
This Founder Turned a Unique Acquisition Into a $10 Million Business in Just 3 Years–Without Venture Capital
Recruiting software company Virgil was just three years old when founder Ron Mitchell went looking for an acquisition that would allow the business to scale faster. But, like many young firms, the Chicago-based Virgil, which matches workers with employers through testing, lacked capital. He did not lack experience, though, which has plenty of value in itself. “We’re not your 23-year-old CEOs,” the 49-year-old says. “It’s great to invest in the dream, but you have to look at fundamentals.”
His fundamentals said no to venture capital –too much focus on hyper-growth and not enough emphasis on cash flow. Mitchell had been down that road before as both an investor in the late 1990s and a serial entrepreneur in the career-development industry since 2002. And his acquisition target–a hospitality-talent-recruiting company called Hcareers–was being divested by a public company called DHI Group. He’d have to orchestrate a complex carve-out.
Knowing he’d need help, Mitchell brought in a friend, Doug Tutt, as a partner. Tutt had been COO of CapRock Communications, which had done a deal with Houston-based PE firm Genesis Park in 2010, and as Mitchell says, “There’s nothing better than knowing [them] personally.” Plus, Genesis Park had a track record with carve-outs.
How $4 Million in Private Equity Helped This Sunscreen Company Go From $1 Million to $40 Million in Sales
Holly Thaggard wasn’t looking for help for her San Antonio-based, kid friendly sunscreen company, Supergoop. Being open to ideas, though, she met with lots of people. “I just took all those meetings. Investors wanted to get to know us. We were not obviously raising capital in a formal round at the time,” she says. One of those meetings was with John Kenney, a partner at San Francisco-based private equity firm TSG Consumer Partners. By the end of their conversation, in late 2012, she had an investor.
Supergoop’s sunscreen sales amounted to about $1 million–not enough to interest TSG. Instead, Kenney offered to put up $100,000 of his own money. A sucker for an impassioned founder story, he was drawn to Thaggard’s verve and mission to protect people of all ages from cancer-causing UV rays.
In late 2013, Thaggard learned the 20-year PE veteran was leaving TSG to start his own firm, JMK Consumer Growth Partners. His goal was to make a handful of investments in companies with cult followings. Supergoop was a natural fit: JMK invested $4 million of a $6.5 million round in Supergoop, in 2015.
The 1 Decision That Helped Yeti Move From Cult Brand to Nearly $800 Million in Revenue
By early 2012, almost six years after its founding, Austin-based Yeti Coolers was hitting its stride. The maker of high end coolers for the hook-and-bullet set had grown to 20 employees and finished the previous year with $29 million in sales, which would earn the company its third consecutive appearance on the Inc. 5000. Roy and Ryan Seiders, the co-founders, had faith in the company they’d bootstrapped, but they were concerned about having all their wealth tied up in it. “We homed in on the idea of bringing in an equity partner that could help us take some chips off the table and be a resource for us as we navigated the next stages of growth,” Roy says.
The Seiders fielded pitches from more than a dozen private equity firms before agreeing to sell Cortec about 70 percent of the company. While neither party will disclose the price, Roy admits that Cortec’s wasn’t the most lucrative offer on the table. But Cortec’s proposal had an intangible the brothers’ truly valued. “They gave Ryan and me a ton of confidence that we’d be in the right hands,” says Roy.
So far, that confidence appears to be justified. Yeti has become a cult brand that last year brought in $779 million in revenue and raised $288 million in its October IPO. (Roy’s holdings are worth more than $170 million.) The now-700-employee company has dropped “Coolers” from its name–thanks to an assist from Cortec in navigating the necessary trademark battles–and expanded the product line beyond $400 heavy-duty coolers to include drinkware (mugs and tumblers), bags, lawn chairs, and even an off-road electric scooter.
This Founder Sold His Company to the Same Private Equity Firm Twice. Here’s Why It Was a Genius Move
Selling your company to the same private equity firm twice may sound a little crazy, but that’s exactly what Bill Clendenen did. And if that doesn’t seem implausible enough, consider that the first time he sold Medic First Aid, a publisher of CPR and first-aid training materials, teh business wasn’t even for sale. “We kept saying we weren’t interested,” Clendenen says.
He got interested in 2006, after executives from the Riverside Company, a New York City-based PE firm, flew to Eugene, Oregon, to pitch their rollup idea. To deal with his company’s two major nonprofit competitors, the American Red Cross and the American Heart Association, Riverside would use its Micro-Cap Fund, which acquires businesses with up to $10 million in ebitda, to acquire a majority stake in Medic First Aid. Then it would merge it with another competitor, a safety and health certification company called the American Safety & Health Institute. The combined entity would be rebranded as Health & Safety Institute.
The strategy was to transform HSI into a technology-enabled health and safety training company. Medic First Aid published and sold books and certification cards, so it needed to digitize training materials and build an online learning platform. “There’s always going to be some skill testing, but a lot of that training can be done online, and it’s a much more efficient way to do it,” says Joe Lee, a partner at Riverside.
These Founders Wanted to Create the ‘Chipotle of Pizza.’ Now, Their LeBron James-Backed Business Is Aiming for an IPO
LeBron James, the Boston Red Sox, mall pretzels: These are crucial ingredients in Blaze Pizza’s ambitious recipe for growth.
Serial entrepreneurs and spouses Elise and Rick Wetzel co-founded their Pasadena, California-based company in 2011 with a simple, if hardly unique, idea: Let’s create the Chipotle of pizza. The dough and toppings would be “artisanal” (roasted garlic, balsamic glaze). The pies would be made to order, in an open kitchen behind a glass counter, and cooked for the hungry customer within three minutes.
It’s a popular franchise concept, one that has Blaze competing with several startups, including &Pizza, MOD, and Pieology, as well as giant incumbents like Domino’s. But Blaze has quickly become a leader, with more than 320 national locations, a projected $400 million in sales this year, and plans for an IPO. “From the very first restaurants we opened, we had this vision that we were going to grow it to a thousand,” says Elise Wetzel, the company’s chief marketing officer.
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