It's very hard to get into a PE fund, says Datassential Inc. CEO Jim Emling. In order to do the kind of work he does within private equity, typically a person would have to have sold to their business to that private equity firm — they value that journey of founder to exit, to PE CEO — and then someone can participate in their investment manager funds.
"You can't cold call Spectrum Equity or Vista, the guys I've worked with, and say ‘Hey, can I get in?’" Emling says. "But you can often participate in their funds."
Speaking at the Milwaukee Smart Business Dealmakers Conference about how entrepreneurs or founders can get involved as investors in funds that specialize in providing alternative sources of capital to early-stage companies, he says when a business goes from $30 million in revenue to $100 million in revenue, the levers to pull are shockingly similar, with the scaling traits similar across industries.
"My own personal investing has generally been alongside the PE firms that I've worked with," he says. "I've had a hard time evaluating startup and angels. I think when you get into the private equity mindset, I'm so used to looking at income statements and underwriting a model and not underwriting a story or a dream or team. I do personally struggle with it, admittedly."
Investing at certain levels means being part of a club, says NVNG Investment Advisors Managing Director Carrie Thome, which is why she says she created the firm was to broaden the amount of people who can participate.
The fund of funds model that NVNG uses she says is an easy access way in.
"You're going to have a diversified portfolio, depending on someone's strategy, of 15 to 30 funds," Thome says. "Transparency is dependent on the firm. We offer full transparency, others don't. But that's really just a matter of the group you invest with. So, just do your work there and make sure that they give you transparency. If you like a particular fund in the future, just invest directly with it. It's a great toe-in-the-water place to start."
Sachse Family Fund Manager Dave Sachse says part of the model he's built at the pre-seed/seed fund whose LPs are only family members is to differentiate his capital and investing, and not just having other people's capital but being able to bring customers to the table through operating companies or distribution partners. It has also helped him stay top of mind with some VCs that want to send and share deals. But as far as owners who have a liquidity event and are looking to invest in alternatives ...
"I think the biggest thing to be is curious," Sachse says. "It sounds corny, but you don't want to have all the answers. That's a quick way to lose money. And then I also think dabbling is important. If you come from the PE world, you don't want to be just slapping down big checks in early stages. That's how you don't get invited back to holidays if you're in a family office. So, it's important to dabble in a variety of different asset classes."
Gateway Capital Managing Partner Dana Guthrie says what's important is a willingness to explore the space.
"Just being willing to explore," Guthrie says. "The cool thing about venture is, while there may be minimums, you don't need a large check to get involved and to 10x your money."