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  • Writer's pictureBrian Shea

Private Equity Managers Shouldn't Pay for Last Seasons Performance

If you're a sports fan, you can likely remember a sports team who traded for or signed a high priced free agent star athlete. The player's agent and the media hyped the player and the manufactured fever lead to a new, huge contract. The player is signed, and then without notice, this star athlete doesn't perform to the heightened expectations.

One day the player is the savior of the franchise, the next day they are a "washed up" has been. Where did the performance go? How did this happen?

Not all team owners fall for the glitz, but it happens all too frequently. The industry of professional sports is designed to pay top dollar for yesterday's performance. Private Equity investment in emerging growth firms should not follow the same risky model.

Private equity managers can fall for the same hype. Their teams identify an emerging growth company and begin to research valuation. They look at what the company has accomplished and what product(s) they have brought to market. The PE firm swoops in, performs due diligence, and puts a sack of money in front of the company's CEO.

But what happens if the CEO's company's best growth performance is behind them? How can a PE firm ensure the company and the company's players still have a few productive seasons ahead of them? They must look under the revenue hood.

Performance to date of emerging growth companies is the result of many variables.

  • If one of those variables was the company only achieving revenue through non scalable actions such as executive teams selling or signing a few sizable contracts from friends of the CEO, then this is an investment red flag.

  • If another one of those variables is revenue growth only via inorganic acquisitions, this is an investment red flag.

The important question to always get answered is "Is the sales team successful in selling to new logos?"

To avoid a signing a "washed up" player, PE firm need to ensure the sales fundamentals and revenue performance can be mapped to documented sales and coaching processes built on a robust talent strategy. Without these documented processes, the PE firms can only guess on why the results are what they are. Without the evidence of established sales motion maturity, private equity investments can be very risky free agent signing.

Here's the good news. An assessment of any company's sales and hiring maturity can be completed within days.

We review how PE managers can quickly assess these key foundational requirements in our e-book "Red Flags in Revenue: A Guide for Private Equity". Download your copy at

To learn more about assessing the foundational maturity of any B2B sales hiring process or sales process, reach out to us at We can help.

Brian Shea



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