I recently had the opportunity to sit down and chat with Gaurav Bhasin of Allied Advisers for an episode of Burkland’s Startup Success podcast. Gaurav has tremendous experience and valuable insights related to capital raises and M&A for startups, and I was especially looking forward to this interview.
Gaurav’s firm, Allied Advisers, is a global technology-focused advisory firm specializing in M&A and capital raises for mid-market companies. The firm has successfully advised on over 100 transactions totaling $15B+ in deal value across US, Canada, Europe, India, Israel, and South America. Gaurav is a Forbes Business Council member and frequent contributor to Crunchbase News.
In this article, I’ll focus on the insights and advice related to Private Equity (PE) that Gaurav shared in our discussion. During the interview, Gaurav also shared good tactical M&A advice, insider insights for navigating today’s fundraising market, and some great general advice for early-stage founders. Be sure to listen to the full interview here.
Navigating the PE and M&A Landscapes: Insights for Founders with Gaurav Bhasin
Navigating the World of Private Equity as a Startup Founder
From Toys R Us to Taylor Swift, there’s no denying PE often gets a bad rap. The industry has often been accused of promoting its own short-term gains over the long-term best interests of everyone involved, and has come under scrutiny by the media, policy makers, and business leaders.
At the same time, there’s an enormous amount of capital available in private equity, and a PE deal is sometimes the best move for a startup.
The key as a startup founder is to be prepared, do your homework, and surround yourself with the right advisers as you scale the company and approach potential PE interest.
Gaurav and his team have advised numerous startups through successful PE deals, serving as a coach, partner, and friend to founders along the way. He has a deep understanding of the industry, which he generously shared during our interview.
Two important things to understand about PE deals upfront are:
- They move fast, much faster than strategic M&A deals. While strategic acquisitions often take 6-12 months to complete, PE deals can be completed in 3 months or less.
- There is a lot of available capital in PE, aggressively pursuing deals. According to Gaurav’s data, PE was involved in 40% of recent SaaS deals.
This means as a founder, especially a SaaS founder, you can end up with a lot of PE capital chasing you. It’s a good problem to have, and can put you in a strong position to negotiate your terms, but you need to manage it carefully.
Tips for Approaching Private Equity Interest
PE firms generally want to get into deals early at a discount. And, if they’re chasing a hot company, they know competing firms are probably chasing the same company.
To find promising startups and get in early, PE firms often hire recent graduates as associates to identify potential deal opportunities and solicit the company founders for interest and information. If you receive a first solicitation call or email from a PE firm, you’re likely talking to one of these associates.
1. Handling Initial Calls from PE Firms
- Take the calls but keep them short, about 15 minutes, so they don’t become a distraction.
- Provide enough information to entice, but not too much.
- Keep any data you share historic. For example, you may choose to share recent revenue and EBITDA numbers.
- Don’t share any future projections. This can only hurt your credibility down the road if you don’t meet your target. It also risks leaking competitive information.
- Ask questions to quickly understand if the firm would potentially be a good strategic fit for your company. Three good questions to start with are:
- What size companies and deals does your firm specialize in?
- What sectors does your firm specialize in?
- Why did they reach out to you today?
- Ask them who will make the final decision for their firm? You want to ensure that the associate you’re speaking with is a gatekeeper, not a decision maker.
2. Managing a Promising PE Deal
If a prospective PE deal advances beyond the first couple of touchpoints and seems like it could be a good fit for your startup, it’s time to get serious about putting together an advisory bench to support you and your company during the process.
- Hire a PE Banker: The PE firms you’re talking to may urge you not to do this. But remember, these firms are run by elite finance professionals looking out for their interests. You need a similar level of expertise on your side. Working with an experienced private equity banker and adviser like Allied Advisers will help ensure you select the best fund for your company and receive a fair valuation and preferable deal terms.
- Hire Finance Support: This is also a time to bring on a strategic finance and accounting firm like Burkland to partner with you through the process. Your finance team will provide additional strategic guidance as well as tactical support to ensure your financial records are current, KPIs are accurate, and you’re prepared for due diligence.
3. Doing Your Own Due Diligence
Finally, before you sign a term sheet, consider talking to founders of other companies the firm has invested in.
Questions to ask other founders before signing a PE term sheet:
- Ask them how it has worked out for them since the deal.
- Did their revenue and EBITDA increase?
- What kind of multiple did they see on rollover shares?
- Did the founding team get paid in the earn out?
- Has the PE firm been a value-add investor?
- Did the firm provide support around things like go-to-market and recruiting?
- Did the firm generally do what they said they would do?
I hope this article helps you understand and approach PE interest in the best way and achieve the best possible deal outcome for your startup. Be sure to listen to the full interview with Gaurav for more on private equity, plus great insights on M&A and the current fundraising market for startups.
Navigating the PE and M&A Landscapes: Insights for Founders with Gaurav Bhasin Featuring private equity insights, tactical M&A advice, insider insights for navigating today’s fundraising market, and some great general advice for early-stage founders. Be sure to listen to the full interview here.