An operating partner is a title used by venture capital (VC) and private equity (PE) firms to describe a role dedicated to working with privately held companies to increase value. The role was created by large-capitalization private equity groups when the importance of driving corporate change to add value increased as sellers became more sophisticated and financial engineering less central to private equity investments in the 2000s.[1] Firms with operating partners argue that value creation potential is better achieved by a fully dedicated partner than relying solely upon external consultants. The operating partner role has evolved into a full-time position drawing a combination of salary, performance bonus, and carried interest similar to an investment partner.[2]
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Transcription
I think a good sommelier is like a good detective. People often make comments or initial disclosures about the kind of wines they're looking for but I think if you're a good sommelier you really have to take the time to drill down deeper and ask a lot of questions to really get an understanding of the kind of wine that people tend to prefer or where they're willing to head. A lot of times guests will come in and they'll say, "Oh, I want to try something totally new." And, you know, really a different kind of wine. So for me that's not always easy because I don't -- I haven't drank with them before so I don't know what kind of wines they normally drink. So there's a lot of wine out there and some people have a little bit more commitment to that idea. I think people really want to be adventurous with wine but you've got to be careful because a lot of times not everybody's threshold of adventurism is the same. So asking a lot of questions is a big part of it. And not only just about the style of wine and the, you know the flavor profile of wines but I think the budget is a big part of it too. And it's always the awkward point in a discussion with a guest. I think that people get nervous about talking about their price point or their budget which is -- it shouldn't be that way. I mean, you know, I think that there's an old mentality about the way sommeliers are and this whole thing that they're gonna judge you or that they're gonna try and take your money. I mean, yeah, in some ways they're salesmen but I think a good sommelier never wants to put someone out of their comfort zone with the wine that they're gonna drink. And I think being up front about a budget is something that makes our life easier. Because if sommeliers are recommending wines, we may recommend a certain type of wine with many different, you know, price points but if you give a budget right from the beginning we can kind of go, you know, horizontally within that budget and give you a lot more great options in that sweet spot. So, there's a lot of ways to do it. I think it's always awkward because you don't know if somebody's on the first date and, you know, you don't want to embarrass somebody who's selecting the wine. So I think, you know, if you're looking at a wine list and you can kind of point at a wine that's in a particular price range that can be a good way to indicate to the sommelier what you're looking to do. I think being comfortable with the idea of a sommelier and then learning to trust them I think is important. Not every sommelier I guess is completely trustworthy but there's more and more coming along. I think the culture is changing and there's a lot of opportunity to learn from sommeliers. When you're explaining the kind of wine that you want to have to a sommelier I think remembering the kind of wine you had is important. I mean nowadays with smart phones it's so easy like just snapping a picture of a label and keeping it on your phone. And inevitably when people are able to do that -- even if I don't have that wine on the list I know wines that are similar in style to that so I'm really able to work within that realm. But remembering a grape varietal that was in it or remembering, you know, a region it was from -- that makes it easier. But if that doesn't work then being able to describe the flavor profiles can be difficult. And I think it's a perception thing and that's the problem. Like somebody saying like, you know, I want a bottle of wine that's kind of full bodied but not too fruity. Like those type of key words, I think, help the conversation flow. So trying to remember, you know, the experiences you had with that wine and the things that you tasted or the tactile experience. Breaking it down more, you know, particularly as opposed to having it be, you know, vague. I think that's the best way. The more specific details that you can remember about a wine, the easier it's gonna be to get a great bottle. And I think as a guest you're gonna learn more about wine the more you do that. I think, you know, technology is making that easier. So relying on things like your smartphone or wine apps or, you know, other forms of social media to kind of learn about wine -- that really helps.
Definition
Operating partners are proven business leaders, functioning as either generalists or specialists, and have successful track records of creating value in operating companies. They are usually more capable of developing strategies and leadership teams than a deal-oriented partner. Most travel often to engage with portfolio companies and are expected to spend time leveraging their professional networks to improve portfolio company value.[3] They are usually former CEOs, COOs, CFOs, chief revenue officers, management consultants, or some combination with market knowledge of PE, such as deal structuring, in the investment firm's target industries. They typically focus on due diligence, strategic planning, commercial growth, operational efficiency, and financial controls. Operating partners use their skills and experience to improve portfolio companies.[4]
Role and Responsibilities
The role of an operating partner can span the full investment cycle from due diligence to post-transaction integration through to a liquidity event or full exit event.[5] Operating partners are deployed by investors and boards as a catalyst for change, as coaches or mentors, and in some cases, to serve as "sparring partners" for management. Operating partners may manage short- to medium-term as well as long-term operational improvement programs for portfolio companies. They may also support management in day-to-day operations, as interim management, as board members or observers, and/or as advisors.[6]
The role of an operating partner should not be confused with the role of a venture partner or an entrepreneur-in-residence. A venture partner is a non-salaried external resource who is expected to source deals and play a significant role in a few or more companies over the life of a fund usually receiving salary and equity interest directly from the target company. An entrepreneur-in-residence (EIR) is similar to a venture partner, but works on only a single company and typically steps into the company as the full-time CEO, CFO, or other c-level position.
Value
All VC and PE firms seek to maximize the value of their investment. In recent years, the industry has experienced increased pressure to drive operational value creation. In other words, shifting focus from leverage and multiples arbitrage to increasing the fundamental operational, commercial, and financial performance of their portfolio companies. As a result, operating improvement must translate into increased enterprise value to yield higher investment returns. Hence the new partnership triad between general partners, limited partners, and operating partners.[7][8]
Notable Operating Partners
While some high-level executives may be appointed as operating partners, they often function more like senior advisors.
- Charles Giancarlo was appointed as managing director and operating partner at Silver Lake Partners following his departure from Cisco Systems where he was EVP, chief development officer, and president of Linksys.[9]
- Richard Baker was hired as operating partner at Advent International having previously served as CEO at Boots plc and COO at Asda.[10]
- Mark Gillett was appointed as managing director and operating partner at Silver Lake Partners following his departure from Microsoft where he was a corporate VP and responsible for product, engineering, and operations at Skype.[11]
- Thomas Ryan was hired as operating partner at Advent International, which he joined after stepping down as president and CEO of CVS Health.
- Bob Swan served as an operating partner at General Atlantic prior to assuming the CEO role at Intel. Later, he joined Andreessen Horowitz as operating partner.
- Gary M. Reiner joined General Atlantic as operating partner in 2010.[12]
- Jim Hinton, former CEO of Baylor Scott & White Health, joined Welsh, Carson, Anderson & Stowe as operating partner in 2022.[13]
- Ajey Gore, former Group CTO of Gojek joined Sequoia Capital, India and SEA as operating partner, Technology in 2020.[14]
References
- ^ Star, Marlene Givant. "Private Equity Groups Focus On Operations To Combat Lean Returns". Forbes. Retrieved 12 Jan 2014.
- ^ Brigl, Michael. "Private Equity: Engaging for Growth: The 2012 Private-Equity Report". BCG Perspectives. Retrieved 13 April 2012.
- ^ Quarta, Roberto. "The Operating Partner: an Industrial Approach to Private Equity Investment" (PDF). Clayton Dubilier & Rice. Retrieved 11 April 2012.
- ^ Brigl, Michael. "New Operating Models". BCG Perspectives. Retrieved 11 April 2012.
- ^ Quarta, Roberto. "The Operating Partner: an Industrial Approach to Private Equity Investment" (PDF). Clayton Dubilier & Rice. Retrieved 11 April 2012.
- ^ Hemptinne, Coralie. "The value of in-house operation teams in private equity firms" (PDF). INSEAD. Retrieved 11 April 2012.
- ^ Brigl, Michael. "Private Equity: Engaging for Growth". BCG Perspectives. Retrieved 11 April 2012.
- ^ Favaro, Ken. "The Next Winning Move in Private Equity". booze&co. Retrieved 11 April 2012.
- ^ "Giancarlo Quits Cisco, Paddles to Silver Lake".
- ^ "Former Boots CEO to join Advent International's Operating Partner Program".
- ^ "Top Skype Exec Mark Gillett Departs Microsoft".
- ^ Griffin, Donal (8 July 2013). "Citigroup Names Reiner, Turley to Board of Directors". Bloomberg.com. Bloomberg.
- ^ "Jim Hinton, Former CEO of Baylor Scott & White Health, Joins Welsh, Carson, Anderson & Stowe as Healthcare Operating Partner" (Press release).
- ^ "Sequoia India brings on ex-gojek CTO Ajay Gore as operating partner".
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