Private equity firms interested in growth (and that should be all of them) have to start utilizing an untapped asset–their networks–especially when it comes to making deals, managing portfolio companies and hiring talent.
For private equity firms, maintaining a competitive edge is about more than fundraising and analytics; it’s also a matter of relationship capital, or the strength of your professional relationships and connections. In order to grow and see their portfolio companies succeed, firms must should be mining both their internal and external networks in these three strategic areas:
1. Deal Origination
???The origination process takes time, personnel and laborious research, with the median equity fund requiring 3.1 investment team members to close one transaction in one year. Does that number sound unsustainable to you? It should. Staying on top of the competition means finding a smarter origination process, and that starts with understanding the power of relationship capital. A warm introduction from a trusted colleague is far more likely to lead to success than endless cold calling.
2. Building Trust with CEOs
To ensure that CEOs of your portfolio companies are willing to bring you in as a trusted advisor, it’s important to build a relationship not only with those CEOs, but also with the people in their professional networks—that is, the people they already know and trust. By mapping your portfolio company’s network, you can access its CEO’s top influencers and connections, bringing your firm into the proverbial inner circle.
3. Hiring Top Talent
In the free-for-all scramble to hire top talent, how can you make sure your organization is getting the best and the brightest instead of being left with the crumbs? Your top candidates are likely being courted by others, which means you need access–a means of connecting that means something; a mutual connection can make this happen for you.
How, then, can leaders at private equity firms map and understand the entire breadth of their organization’s network? For that answer and more, check out our most recent white paper, “How Smart Private Equity Firms Use Relationship Capital To Drive Growth.”