Permanent Equity
May 26, 2021
by a searcher from The University of Texas at Austin - Red McCombs School of Business in Houston, TX, USA
Is anyone in here involved with or ever considered starting a permanent equity fund? If so, would love to connect to hear about your experience or get your opinion on such a fund structure.
Thank you.
from University of Virginia in Minneapolis, MN, USA
from The University of Texas at Austin in Houston, TX, USA
Very similar. The only difference between the two, in my mind, is that a permanent equity fund plans to invest/own multiple businesses indefinitely. The intention would be to have an acting CEO (other than yourself) at each portfolio company (this could come at a later date after you have run a newly acquired business for a few years). With multiple businesses, one could in theory mitigate risk while also building cumulative FCF across a portfolio of companies.
In other words, a permanent equity fund is a private equity fund that holds its investments indefinitely. Given the smaller size of the targeted companies, the partner(s) would more than likely not be able to rely on the owner to continue running the company like many private equity firms do. Thus, the partner(s) would likely have to run a newly acquired business similar to a search funder until the business is streamlined and you have found a general manager or acting CEO.
You could go either way in regard to tapping outside capital or maintaining just your own (or possibly including a partner's) capital within the fund. Would be curious to get others thoughts on this aspect as well.