Intentional Growth #316: The Ultimate Guide on How Private Equity Works & Makes Money with Sunny Vanderbeck
Ep.#2 [THEME FIVE]
If you’ve seen one private equity firm, you’ve seen one private equity firm. There are about 8,000 PE firms in the United States, and they are all structured differently and have different types of people running them.
In this episode, Ryan and his guest Sunny Vanderbeck shine a light on the black box of private equity so you can better understand how it works and how to ask the right questions so you can determine whether the PE firm you are talking to is something you should consider or not.
Our guest, Sunny Vanderbeck, is an investor, entrepreneur, best-selling author, and former military leader. Sunny is the perfect guest to dissect private equity because he is the co-founder of Satori Capital, a multi-strategy investment firm founded on the principles of conscious capitalism. This is very unique because Sunny’s firm is an “indefinite hold period” firm rather than a normal private equity firm that buys and sells a business within five to seven years.
Sunny and Ryan explain where the money in private equity comes from (limited partners), why they buy companies (investment thesis), the different ways they structure the deals, what it can be like working under the management of a private equity owned company, and how private equity delivers the capital to their limited partners.
This is a great episode to tune into if you want to better understand the world of private equity and how it works.
// WATCH THE INTERVIEW ON YOUTUBE: Intentional Growth™ Podcast
What You Will Learn
- Where the money in private equity comes from (limited partners) and what their expectations are.
- How the ownership structure of a private equity firm works and the different roles within a firm.
- How private equity firms get paid and what the 2 and 20 rule is.
- What carried interest is and why it’s one of the major opportunities for private equity.
- How private equity funds are structured and how the capital is deployed.
- How the typical private equity timeline works and how they impact the fund and each company they buy.
- What investment periods are and why they matter to the sellers.
- The difference between bolt-on versus platform companies and how they impact the valuation.
- When and why a private equity uses debt versus equity, how it impacts the purchase price, and what that can mean after the sale.
- Why some private equity firms buy to own and why some buy to sell.
- What the second bite at the apple means.
- Why most private equity firms want you to roll a percentage of your proceeds back into the deal (rolled equity).
- Things to think about–and what it could be like–when working as an employee of a private equity owned company.
- Questions a business owner–and seller–should ask a private equity firm when negotiating a sale.
// USE YOUR FINANCIALS TO CLARIFY A PATH TOWARDS A MORE VALUABLE BUSINESS: Intentional Growth Financial Assessment
Bio:
Sunny Vanderbeck is an investor, entrepreneur, best-selling author, and former military leader focused on accelerating the growth of mid-market companies and creating best-in-class, built-to-last businesses.
Sunny is co-founder of Satori Capital, a multi-strategy investment firm founded on the principles of conscious capitalism. By providing real-world insights from its experienced team and long-term funding with no fixed time constraints, Satori acts as a true partner for its portfolio companies as it challenges them to pursue extraordinary outcomes for all stakeholder groups.
Before founding Satori, Sunny co-founded and served as CEO of Data Return, a leading provider of managed services and utility computing. The company sustained 40% quarter-over-quarter growth for more than three years and reached a $3 billion market capitalization, making Sunny one of the youngest CEOs ever to lead a Nasdaq company. For more than a decade, Sunny led the company through all phases of growth and transformation, received numerous honors including an “Entrepreneur of the Year” finalist designation from Ernst and Young, and nurtured a conscious culture for all of the business’ stakeholders.
His experiences with building, selling, buying back, and re-selling Data Return, along with his subsequent involvement with dozens of private businesses at Satori, led Sunny to publish his first book, Selling Without Selling Out: How to Sell Your Business Without Selling Your Soul. The book serves as a roadmap for business leaders who face the unique challenges and quandaries involved in selling a business or taking on a financial partner. Drawing on hard-won wisdom earned through decades of experience, Sunny and other business founders and CEOs provide pragmatic guidance on navigating the complicated ins and outs of the sale process while preserving what matters most.
Visit SunnyVanderbeck.com for more information on the book and supplemental materials. Prior to founding Data Return, Sunny served as a Section Leader of the 2nd Battalion, 75th Ranger Regiment and led technical teams at Microsoft. Both roles helped him learn the value of principled leadership in extraordinarily challenging situations.
Sunny continues to share his thoughts on leadership, strategy, business operations, and long-term value creation as a sought-after speaker and as an advisor and board member to several private companies. He is also a long-standing member of YPO (formerly Young Presidents’ Organization), where he served as the North American co-chair of the organization’s sustainable business network and co-founded the YPO Entrepreneurship and Innovation Network, which helps more than 3,500 president and CEO members accelerate the growth of their businesses.
Interview Quotes:
10:27 - “In the short version of conscious capitalism, profit is not a reflection of value you can extract from a system, it’s a reflection of value you create in a system.” - Sunny
15:14 - “Private equity firms, by and large, outperform the stock market in a meaningful way.” - Sunny
24:45 - “If you don’t have a track record, you’re not going to get any money. It’s the nature of things and I think it’s the world saying, ‘You’re just going to want one really bad to get it started.’” - Sunny
25:03 - “That’s a guy who said, ‘This is more important thing to me than everything else so I’m just going to keep at it.’” - Sunny
37:00 - “Hope is not a very good plan.” - Sunny
40:15 - “Would you rather have 100x your money? Or 3x your money? The more debt you can put on it, the more x your money you get.” - Sunny
45:41 - “Deeply understanding how your business generates or consumes cash, understanding how variable your offstructures are, can help you understand ‘Is debiting is an appropriate tool for what I’m trying to solve for?’” - Sunny
48:48 - “If you have a growing company, with happy customers and happy employees, and lots of cash flow, everything is going to be okay.” - Sunny
Links and Resources:
Intentional Growth #170: How One Week Killed the Perfect Billion Dollar Deal with Sunny Vanderbeck
“Selling Without Selling Out” by Sunny Vanderbeck, Amazon
Mastering Your Cash Flow - Video Series
The 5 Intentional Growth™ Principles (5 Videos to Help Clarify Your Vision)
Intentional Growth™ Financial Assessment
You can also reach out to me via email at rtansom@arkona.io, or on my LinkedIn.