Private Equity Experience

Five Founder Fails: Navigating Private Equity

• Emily Sander • Season 1 • Episode 22

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In this 35‑minute episode, the hosts break down the five most common pitfalls that founders face when they bring a private‑equity (PE) firm aboard. From overlooked deal structures to the emotional reality of an eventual exit, the conversation is packed with hard‑won lessons, humorous anecdotes, and actionable advice for entrepreneurs who are looking to or already in a PE partnership.

“A founder’s job is to build a company. A PE partner’s job is to unlock value—so you need to know the difference.” – Ed Barton

Navigating private equity is less about groundbreaking innovation and more about precision, preparation, and clarity around expectations. The best strategies collaborate by anticipating disruption, understanding the deal, and being honest with themselves and their partners.

 Don’t start with a belief you’ve navigated PE. Question it. Add these notes to your cheat sheet.

🔍 Key Takeaways
1️⃣ Understanding Deal Structures

  • Founders often underestimate the importance of knowing the deal structure.
  • Failing to understand exit strategies can trap founders, leading to economic uncertainty post-sale.
  • Financial modeling accuracy is critical; overly optimistic projections can hurt valuations and future compensation.

2️⃣ Shifting from Founder to Employee

  • After a PE deal, founders must shift from CEO to employee and accept decision-making authority shifts.
  • Leadership transitions can strain relationships if not communicated clearly.

3️⃣ The Trapped Money Trap

  • Founders may end up with trapped equity due to unfavorable deal terms or rollover options.
  • Negotiating clear payout structures upfront is non-negotiable to maximize returns.

4️⃣ Ignoring PE’s Professional Rigor

  • PE firms demand granular financial governance (KPIs, scenario analysis, forecasts).
  • Founders who resist these changes risk losing credibility and control.

5️⃣ Lack of Exit Strategy Awareness

  • Understanding the exit timeline (ranging from 5-10 years) helps founders plan post-sale.
  • Silicon Valley’s or similar PE firms do not mate for life—expect transitions.

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🎙 Podcast – Strategies, PE 101 & witty banter

📚 Book – On‑Ramp to Exit, full deal life cycle

🛠 Resources – Free templates, guides, tools

🔗 LinkedIn – Follow us for fresh PE insights

================================

Who Are We?

Three insiders. One mic. All things private equity — explained. Hi 👋 We’re Ed, Rory, and Emily — a CEO, a CFO, and a Chief of Staff — here to demystify the world of private equity. Between us, we’ve sat in the founder’s chair, run PE‑backed companies, and worked on the deal side, so we know the wins, the pitfalls, and the jargon (and we’ll explain it).

Through the Private Equity Experience Podcast, our book On‑Ramp to Exit, and a library of free tools and templates, we share real‑world stories, practical strategies, and insider insights to help you navigate every stage of the PE journey — whether you’re leading a portfolio company, joining a deal team, considering PE, or just PE‑curious.

🔗Connect with Ed

🔗Connect with Emily

🔗Connect with Rory

Epic Sports Failures

emily-sander_1_10-01-2025_150825

all right, here we go. Lightning round.

rory-liebhart_1_10-01-2025_150825

my.

emily-sander_1_10-01-2025_150825

sports team collapse stands out as the most epic fail in history.

rory-liebhart_1_10-01-2025_150825

pretty much every year of the Mariners, but this one, after the Allstar break.

sweet-eddie-b_1_10-01-2025_150824

So I will go all the way back to, I believe it was what's called 1992 when the Houston Oilers and the Run and Shoot Offense powered by Warren Moon.

emily-sander_1_10-01-2025_150825

Oh,

sweet-eddie-b_1_10-01-2025_150824

to Frank Reich and the Buffalo Bills in a 42 point comeback in the playoffs to put the bills in the Super Bowl for the third or fourth time and they lost them. So it did. I can't,

emily-sander_1_10-01-2025_150825

of

sweet-eddie-b_1_10-01-2025_150824

yeah. But it was, that was one where I, growing up in upstate New York, I was a Bills fan. And I just remember like this game is over and Frank Reich, who also had one of the largest comebacks. NCAA college football history was the quarterback for the Maryland turpins when they, when they pulled something similar?

rory-liebhart_1_10-01-2025_150825

Yep.

sweet-eddie-b_1_10-01-2025_150824

Yep.

emily-sander_1_10-01-2025_150825

I love how you know this, but I

sweet-eddie-b_1_10-01-2025_150824

I, I am,

rory-liebhart_1_10-01-2025_150825

man. I

sweet-eddie-b_1_10-01-2025_150824

the cliff of worthless knowledge.

emily-sander_1_10-01-2025_150825

I dunno who Cliff is, but he sounds great and I know that.

rory-liebhart_1_10-01-2025_150825

generation,

emily-sander_1_10-01-2025_150825

Um,

sweet-eddie-b_1_10-01-2025_150824

How you.

rory-liebhart_1_10-01-2025_150825

but I don't consider that useless information. I think that's awesome and highly valued information.

Worst Investments and Purchases

emily-sander_1_10-01-2025_150825

but I know that the current holder of that record is Kurt Cousins.'cause I love Kurt Cousins and he has the biggest comeback. He took that from Frank Reich and Frank Reich. Called him to say like, now you carry this mantle. You use this for good in stories and encouraging people and things like that. So, um, yeah. Very cool. Okay, next question. What's the worst investment or purchase you've ever made? Big or small?

sweet-eddie-b_1_10-01-2025_150824

Say that one again.'cause there's just so many choices. I just wanna make sure I understand.

emily-sander_1_10-01-2025_150825

investment or purchase you've ever made? Big or small?

rory-liebhart_1_10-01-2025_150825

Worst investment. I have a hard time picking that one. I mean, I haven't had any crazy bad ones, so, but it still

emily-sander_1_10-01-2025_150825

Ed is pinching the bridge of his nose and like,

rory-liebhart_1_10-01-2025_150825

but maybe it just doesn't mean I've taken enough risk in my life, frankly,

emily-sander_1_10-01-2025_150825

Hmm,

sweet-eddie-b_1_10-01-2025_150824

so many choices. It's so difficult to choose. I could go,

emily-sander_1_10-01-2025_150825

not risk adverse. Ed Barton.

sweet-eddie-b_1_10-01-2025_150824

no, I could go like, I could go like, well it was when I bought the, the glass and glazing contractor and I didn't know anything about glass and glazing. That was an interesting choice.

emily-sander_1_10-01-2025_150825

believe your reason for that you gave to me was like I wanted to like break shit up. Like I wanted to break glass

sweet-eddie-b_1_10-01-2025_150824

Yeah. Well, and the other part was I wanted to get out of like sitting behind a computer and stuff like that. And I.

emily-sander_1_10-01-2025_150825

Okay.

sweet-eddie-b_1_10-01-2025_150824

Done construction work in the Army. So I was like, oh, this will translate. Didn't, um, blue co blue collar employees are not soldiers, in case you had any curiosity about that. Um, so I'd, I'd probably put that one at number one. I've, I've had a couple real estate investments that were not good ones ear much earlier in my career. Um, so in my twenties, um,

rory-liebhart_1_10-01-2025_150825

Yeah.

sweet-eddie-b_1_10-01-2025_150824

unit apartment complex, that really was not a good decision. I'm in, uh, what I was hoping wasn't emerging, but was actually a declining area of Syracuse, New York. Um, you know, so I, I've got, I've got plenty.

rory-liebhart_1_10-01-2025_150825

Yeah. Yeah. I've, I've

emily-sander_1_10-01-2025_150825

Rory is.

rory-liebhart_1_10-01-2025_150825

I've probably made some dumb decisions on like, not investing in things like I'm, you know, so, so giving up on great returns because maybe I played a little too safe in my personal life, you know?

emily-sander_1_10-01-2025_150825

Hmm.

rory-liebhart_1_10-01-2025_150825

more,

emily-sander_1_10-01-2025_150825

Okay.

rory-liebhart_1_10-01-2025_150825

issue.

Funniest Pitch Fails

emily-sander_1_10-01-2025_150825

Yeah, the approaches and temperament came out clearly in that, in that, those answers. one here, and then we'll roll. What's the funniest fail you've ever seen in a pitch or presentation? So you are receiving the presentation. What's the funniest fail like? Oh wow.

rory-liebhart_1_10-01-2025_150825

I, I mean people that fail to describe what they're pitching adequately and come across. Idiotic, I guess, and I've seen countless instances of that, you know?

sweet-eddie-b_1_10-01-2025_150824

I, I actually can't name any, I mean, I'm, I'm, I'm struggling and I think I have subconsciously just flushed every memory of those out. I mean, there's, I'm, and I'm trying to think in like business and there's just nothing coming to mind where I was like, this is just a dumpster fire and a half,

rory-liebhart_1_10-01-2025_150825

I will

sweet-eddie-b_1_10-01-2025_150824

um.

rory-liebhart_1_10-01-2025_150825

example of a pitch I was part of where somebody I was with that happened to be like an independent advisor, so like a broker that will put you in front of investors. We were in New York City and this was for a bankruptcy business that Ed I worked for, we were pitching on basically a, you know, private investment fund to go buy a bunch of bankruptcies. Anyway, this independent, uh, advisor shall not be named. Uh, older gentleman, uh, certainly very, um, advanced in age. We were in Manhattan, probably, I don't know, whatever, 60 plus floors up. And we were in this, office. Uh, but of that, you could tell there were, you know, they had a lot of LPs, uh, big office, you know, very high end. Anyway, a lot of glass. So we were invited to join the potential investors for our pitch. This poor gentleman walks through basically a glass wall or walks into a glass wall,

sweet-eddie-b_1_10-01-2025_150824

Oh my God.

rory-liebhart_1_10-01-2025_150825

his fricking head on the glass, and it leaves like a, know how like if you get a, a window ding like on your windshield, like it kind of spiders out like that happened? In this

emily-sander_1_10-01-2025_150825

Oh no.

rory-liebhart_1_10-01-2025_150825

Manhattan, glass must have been an inch fricking thick and this guy's head smashed it and he, I don't know how he stood on his feet, and I'm not sure he did so well after that, but it was pretty damn funny because that's not a failure out the gate, um, just let generally, I don't know what is, but um. Needless to say, we did not get investment from this group. And uh, yeah, this

emily-sander_1_10-01-2025_150825

And one man walked out, concussed.

rory-liebhart_1_10-01-2025_150825

might have had a cracked cranium, but when we, that was crazy though. Insane

Top Mistakes Founders Make with Private Equity

emily-sander_1_10-01-2025_150825

right, go. The top five things founders need to know about how to not woo the top five things founders need to know and how to not make mistakes in partnering with pe. What are the fails to avoid if you are partnering with PE? Only five.

rory-liebhart_1_10-01-2025_150825

I'll start as a founder, not knowing what you're getting into, with a certain type of deal structure, or I should say someone should know completely what kind of deal they're getting into and what does that mean for them? What does it mean for the company?

emily-sander_1_10-01-2025_150825

So like you, like as a F, you should know the fricking deal structure. That seems basic. Are people not doing this?

rory-liebhart_1_10-01-2025_150825

but it's not, uh, I, there's, there's many, many stories of, of folks selling their company, um, to, whether it's private equity or pr, you know, another party you know, thinking that they can, there's smarter than. The other side, so to speak, and that maybe they don't need advisement from, all manner of, uh, professionals like lawyers, accountants, others, and they just move ahead with a deal. And the next thing they know, compensation that was coming their way on the business could have been. Structured in a way where they don't see a dime upfront and, and or, and, or they see cash up front, but they don't have what's, you know, kind of called rollover equity or getting a sec, second bite at the apple down the road, which is where most people probably make more of their money, is if you, you know, sell your business. You stay part of it, you help it grow. You have a big incentive to do that. But basically what I'm saying is without knowing. What the structure is, what does it truly mean for you and your family? What does it mean to your employees? What does it mean for the business? you could get screwed. You might think you're getting a good deal, but you could, could get screwed, you

emily-sander_1_10-01-2025_150825

So people get all excited'cause they have a deal, they have a deal with pe. They picked me, I'm gonna make a shit ton of money. And they don't look at the details and don't think about the ramifications and they're like, oh

rory-liebhart_1_10-01-2025_150825

yeah.

emily-sander_1_10-01-2025_150825

um, now I'm in it.

rory-liebhart_1_10-01-2025_150825

And I mean, I'd

sweet-eddie-b_1_10-01-2025_150824

Uh, and not only are they in it, but the structure is such that they're in it behind a preferred return and an accruing preferred dividend. And, you know, so they're, they're in it. They've rolled money over. You know, like Rory said, the deal structure's critical and folks go into it going, well, I cashed out for$30 million and you probably could have cashed out a lot more and or your rollover, which they've convinced you to put a bunch of that 30 million back in,

rory-liebhart_1_10-01-2025_150825

Right.

sweet-eddie-b_1_10-01-2025_150824

is now like trapped behind, behind a bunch of stuff that you know you don't control.

rory-liebhart_1_10-01-2025_150825

Yeah.

emily-sander_1_10-01-2025_150825

So that is fail number one, having

rory-liebhart_1_10-01-2025_150825

It's a big one. A

emily-sander_1_10-01-2025_150825

left money on the table

rory-liebhart_1_10-01-2025_150825

Yeah.

emily-sander_1_10-01-2025_150825

having your money trapped. That sounds horrible. Okay. What is.

sweet-eddie-b_1_10-01-2025_150824

Number two. Number two is not knowing that you're about to be an employee working for someone else.

emily-sander_1_10-01-2025_150825

Oh.

rory-liebhart_1_10-01-2025_150825

Yeah. No matter what type of sweet talking you heard over the closing dinner or even before that in the process, yeah, that can be a rude awakening.

sweet-eddie-b_1_10-01-2025_150824

Yeah. That's where I've seen, I mean, I have built a career. On cleaning up after private equity, after founders have sold to private equity and that they've been exited,

rory-liebhart_1_10-01-2025_150825

Yep.

sweet-eddie-b_1_10-01-2025_150824

or in some cases now reentered. But that's exactly, that, that fail is the one that, where the, the first one that we talked about is largely economic and,

rory-liebhart_1_10-01-2025_150825

Yes.

sweet-eddie-b_1_10-01-2025_150824

and there's a, you know, you could, that's gonna hurt the pocketbook. The second one hurts the ego.

rory-liebhart_1_10-01-2025_150825

Mm-hmm.

sweet-eddie-b_1_10-01-2025_150824

you've built this business, you, it's your baby, you know, you've held onto it, you know, all that good stuff, and then boom, you're, you're not working for some dude that's like half your age, that is running your business with a spreadsheet and is telling you exactly what you need to do and what you're reporting needs to be and when you need to call them and that blah, blah, blah, blah, blah. And there's a lot of founders just that ain't their DNA.

emily-sander_1_10-01-2025_150825

fold, man. They, I mean, they're used to being the king of the castle. They're used to calling the shots. When I walk in a room, everyone perks up and then they get thrown these$12 words by a dude behind a computer and they just, I've seen'em fold, man. Like they just get kicked in the nads.

rory-liebhart_1_10-01-2025_150825

Yeah. And then

sweet-eddie-b_1_10-01-2025_150824

Well.

rory-liebhart_1_10-01-2025_150825

turns acrimonious. I mean, then it becomes, it has a potential of getting very toxic in an environment and, you know, the employees are not

emily-sander_1_10-01-2025_150825

Yeah.

rory-liebhart_1_10-01-2025_150825

seeing all that and feeling all that. Yeah. It's, uh,

emily-sander_1_10-01-2025_150825

Yeah.

rory-liebhart_1_10-01-2025_150825

that's where you can get a failure to launch on a deal, you know, from both sides. You know, like the, the buyer, let's say PE in this

emily-sander_1_10-01-2025_150825

Yeah,

rory-liebhart_1_10-01-2025_150825

You know, they, they, they think they have a collaborator on their hands potentially, and maybe that's not the case. That then just becomes a distraction from moving forward on what the overall purpose of the partnership was, you know?

emily-sander_1_10-01-2025_150825

so fail number two is not understanding that are not the captain anymore. As soon as you sign that agreement, you are working for someone else.

rory-liebhart_1_10-01-2025_150825

Or, or maybe you understand it, but you have denial about what

sweet-eddie-b_1_10-01-2025_150824

I was gonna say, you don't under, you don't understand it.

rory-liebhart_1_10-01-2025_150825

again, again, you, you, you believe that. These guys don't know Jack. I will figure this out. I, you know, the employees support me. You know, all this stuff. Like, you're telling yourself these stories and you know, I'm not saying it's never been pulled off before, but I've, I've personally been party to more deals where it has not, than I have, way more than I have. And

emily-sander_1_10-01-2025_150825

Okay.

rory-liebhart_1_10-01-2025_150825

you know, like that's, that's more of an issue of like. Being real with, with yourself in a way, and also being very candid before the deal is even close to being done with. How is this gonna work? You know, like, uh, with, with the private equity group or the, or the buyer in that case.

emily-sander_1_10-01-2025_150825

Yeah, and this might lead us into, this might be a number three here. We've talked about this before, but oh, they can't run the business without me.

sweet-eddie-b_1_10-01-2025_150824

Oh

rory-liebhart_1_10-01-2025_150825

my,

sweet-eddie-b_1_10-01-2025_150824

yeah,

rory-liebhart_1_10-01-2025_150825

hubris.

sweet-eddie-b_1_10-01-2025_150824

I, I was gonna say that. I don't know if that's as much Yeah, that's a fail. That's like a fail between, between the ears

rory-liebhart_1_10-01-2025_150825

True.

emily-sander_1_10-01-2025_150825

They can't get rid of me.

sweet-eddie-b_1_10-01-2025_150824

they wouldn't, they wouldn't have bought the business if they thought they couldn't have run it without you.

rory-liebhart_1_10-01-2025_150825

diligence and don't have contingency plans? A bbc, we talk about it in our book. I, know, and by the way, our, our audio book's out, it came out this week. Little plug there. But

emily-sander_1_10-01-2025_150825

ding, ding.

rory-liebhart_1_10-01-2025_150825

ding,

emily-sander_1_10-01-2025_150825

If

rory-liebhart_1_10-01-2025_150825

But yeah.

emily-sander_1_10-01-2025_150825

you wanna hear these voices on a audio book, then check it out in the show notes below.

sweet-eddie-b_1_10-01-2025_150824

The Dult tones.

rory-liebhart_1_10-01-2025_150825

Yeah.

sweet-eddie-b_1_10-01-2025_150824

the dult tones.

rory-liebhart_1_10-01-2025_150825

but yeah, I, I think, um, yeah, it's, it's, it's really, yeah. You can't, you can't avoid those, those conflicts in a lot of cases. You know, you just can't,

sweet-eddie-b_1_10-01-2025_150824

No. And it, and it goes, it, it ties into a little bit about what you were saying, Emily, where when you were the founder, you were used to having, like, everybody, everybody bow down and, and kind of, you, you are the, the center of attention and the challenge that some founders run into is their team still treats them that way, right.

rory-liebhart_1_10-01-2025_150825

Yeah. Well said.

sweet-eddie-b_1_10-01-2025_150824

They're being pushed down as the employee from the sponsor, and they just don't, they really just don't know how to handle that. I mean, that's a, just like, it's a, it's a, and they don't want to show to their team. They're not in charge. And it's tough to go, well, you know, I can't do it because the private equity guy says, I can't,

emily-sander_1_10-01-2025_150825

there, so, okay. I think we've all seen this. There's. The PE guys play nice as long as they can.'cause they don't want trouble. If they

sweet-eddie-b_1_10-01-2025_150824

Nope.

emily-sander_1_10-01-2025_150825

have a CEO or founder stay in there and be fine, that's great. Some founders make the transition, they like, they get on board. But there comes a point a meeting where the rubber meets the road and it's basically like you are not in charge or that's not your call. And it just dawns on the founder where it's like,

sweet-eddie-b_1_10-01-2025_150824

The, that's not your call. Yeah. That your, that's not your call. I've, I've been in those board meetings

emily-sander_1_10-01-2025_150825

So

sweet-eddie-b_1_10-01-2025_150824

and that. Yep.

rory-liebhart_1_10-01-2025_150825

We've been

emily-sander_1_10-01-2025_150825

makes grown men. puddles

rory-liebhart_1_10-01-2025_150825

We've been in, we've all three, been in the same meeting. Yeah. Um,

emily-sander_1_10-01-2025_150825

men turn to puddles. Yes.

rory-liebhart_1_10-01-2025_150825

you know, at the end of the day, you know, if you may have once owned the entire pie, but you now own a minority share, and it might be a small minority share, so just by nature you don't have the, you can't call the shots, you know, unless you have some sort of a. Some provisions we've talked about again, but like preserving your voting rights and things like that. You know, you are, you are, you are a lesser, lesser player From the ownership standpoint, that's where the

emily-sander_1_10-01-2025_150825

Not a lesser person, just a lesser player. So

rory-liebhart_1_10-01-2025_150825

no. Sometimes a lesser person, but, you

emily-sander_1_10-01-2025_150825

well sometimes lesser person. But I think to avoid that fail. So the fail is not fully knowing, recognizing, internalizing, like

rory-liebhart_1_10-01-2025_150825

That

emily-sander_1_10-01-2025_150825

is the

rory-liebhart_1_10-01-2025_150825

I think

emily-sander_1_10-01-2025_150825

gonna happen.

rory-liebhart_1_10-01-2025_150825

just being, being realistic, you know,

emily-sander_1_10-01-2025_150825

Okay, that's, that's fail number three. All right.

rory-liebhart_1_10-01-2025_150825

yeah, yeah. I think it kind of comes hand in hand and Ed talked about it is like it's gonna be a different kind of company when you're owned by a bigger company or a professional investment company, PE you're gonna have things that you might not be used to doing. You know, reporting, uh, certain levels of budgeting, KPI, tracking, name it, you know, um, professionalizing your firm. So you may have gotten your, your firm just your brilliance and charisma, charisma. To a certain point, but you know, you could only take it so far. Obviously otherwise you wouldn't have needed on additional capital. You would've just bootstrapped in and may may still run on business that you had up until that point. But

emily-sander_1_10-01-2025_150825

The, the.

rory-liebhart_1_10-01-2025_150825

fun probably for, uh, a founder in a lot of cases. And I, I'm only saying that I'm not sort of like making light of it, but it's true, like the organizational structure of PE-backed company is very different than. Founder run, I call the shots. You know, we do what I want to do with product, customers, pricing, all that stuff. Now all of a sudden you now have people who've got material investment. You have, know, the deviation to your financial performance could be very problematic because you've likely taken on a bunch more debt that you have to service. you know, you have to maintain managing the business to the numbers. KPIs again, you know, data, data,

emily-sander_1_10-01-2025_150825

Well, I think Rory, in, in all of what you're saying is like you have to answer for your decisions and the answer can't be because I wanted to

rory-liebhart_1_10-01-2025_150825

a

emily-sander_1_10-01-2025_150825

like, as I said, so

sweet-eddie-b_1_10-01-2025_150824

Yep.

rory-liebhart_1_10-01-2025_150825

put it. Precisely

The Importance of Hitting Financial Targets

emily-sander_1_10-01-2025_150825

and you, and you could get away with that before. That was a perfectly valid answer'cause I said so. Okay, sounds good. Sounds.

rory-liebhart_1_10-01-2025_150825

I'll say it in truth, I think maybe some of that still plays, like you can get away with a lot until you, you don't start hitting the numbers that you put in front of and your

sweet-eddie-b_1_10-01-2025_150824

That was, that was my number. That was my number four.

rory-liebhart_1_10-01-2025_150825

let you take it

emily-sander_1_10-01-2025_150825

Number four.

sweet-eddie-b_1_10-01-2025_150824

Yeah. Number four is you put out a forecast that you can't hit.

rory-liebhart_1_10-01-2025_150825

Yeah. Yeah,

emily-sander_1_10-01-2025_150825

don't do that.

Collaborative Scenario Analysis

sweet-eddie-b_1_10-01-2025_150824

And you know, we as we as uh, chief executives have a tendency to wanna set, especially with our sales teams, you know, optimistic. Aggressive stretch goals, and we're used to putting those in place. We're used to driving toward, you know, how can we drive faster, harder, faster, harder? And you put that in front of the private equity guys and you don't. Aren't collaborative around, here's my assumptions. This is, here's a base case, here's a stretch case and here's a worst case. And kind of do your scenario analysis and show the inputs. And I've seen enough private equity guy or or founders going into private equity transactions. They close the transaction, that transaction's closed on their projections going into the transaction, which were probably rosy and aggressive. And then they don't have an honest discussion with the private equity sponsor. During diligence or post diligence around the rosy and aggressive, they start to miss and then they don't have the conversation'cause they just hope it'll disappear and go away.

rory-liebhart_1_10-01-2025_150825

sure.

emily-sander_1_10-01-2025_150825

the thing. They, they somehow, I've seen this, they, somehow think the PE guys will forget the numbers you told them.

sweet-eddie-b_1_10-01-2025_150824

P guys don't forget numbers.

rory-liebhart_1_10-01-2025_150825

uh

emily-sander_1_10-01-2025_150825

It's like, what? No, they're gonna like the the, no, we can, I can talk'em off. I can talk'em off, Emily. No, you can't. You don't think they're gonna be like on March 30th of this year, you said dah, dah, dah, dah.

sweet-eddie-b_1_10-01-2025_150824

I know one, I know one PE guy who, you know every, every number you said went and Evernote

rory-liebhart_1_10-01-2025_150825

Yeah.

sweet-eddie-b_1_10-01-2025_150824

and, and then it would be searched and it would come out and they would reference that to you

rory-liebhart_1_10-01-2025_150825

Yeah, I,

sweet-eddie-b_1_10-01-2025_150824

time.

rory-liebhart_1_10-01-2025_150825

I,

sweet-eddie-b_1_10-01-2025_150824

Now they might, they'll forget their mom's birthday before they forget a number. You told them on a projection

rory-liebhart_1_10-01-2025_150825

yeah.

sweet-eddie-b_1_10-01-2025_150824

ain't no lie. That's reality.

rory-liebhart_1_10-01-2025_150825

I mean,

emily-sander_1_10-01-2025_150825

Yeah.

rory-liebhart_1_10-01-2025_150825

I can honestly say with a straight face, I've never, I've never comprised bs, you know, in a proforma that we've put put out there for suitors to, but.

emily-sander_1_10-01-2025_150825

I like how you just said comprised bs. This is like, these are Rorys that are now appearing.

rory-liebhart_1_10-01-2025_150825

Yeah, so, but what I will say is this, you put out a forecast, be honest here. The other side has a different for forecast on their side. They've got a, they've got basically a compression forecast, which is to say. Based on the key drivers of this business and stuff goes haywire. Here's what it looks like. They wouldn't buy the business if they didn't look at all those things. So, you know, but to what Ed said and what you said, also, Emily, I have had conversations two years after a sale, not just with PE, but also strategic buyers, where they point to something that, you know, I had modeled out and they said, this is what you said this was gonna do. And it may be three years since I put that together. like. True. But a lot has changed and so, you know, anyway, point being is you think these things might just be like glazed over and, and just like not paid attention to or, you know, given a cursory review. But no, that's not the case at all. They're very thoroughly reviewed, scenario analyzed to the, you know, nth degree. But they're always gonna come back and kind of you to what you committed to, whether or not they actually believe it's achievable or not. And it's just how it goes. And so, so don't take my, our point here is don't take anything lightly. I mean, be very serious about what you're presenting as far as the view on your business and defensible. Um, you know, Rosie is good in some cases if you think there's a high probability of it being met. You know, sandbagging is. By necessity. Pretty dumb because then they'll basically point to that and give you a valuation based on what you're showing them. And you can't really say, no, well, I'm, I'd sandbag that. That's not you. You should pay me more. If they're gonna be like, no F you anyway. So it's gotta have that sort of Goldilocks. It can't be too bullshit. Can't be, can't be bullshit at all. It has to be credible. But you also, you don't serve yourself well. By sandbagging it artificially either just with

emily-sander_1_10-01-2025_150825

I.

rory-liebhart_1_10-01-2025_150825

information you have put out, the best view you have, you know?

emily-sander_1_10-01-2025_150825

Yeah, and and founders sometimes aren't used to that.'cause given what we just said, like I call the shots, I make up the numbers, we don't even have a forecast. Two, you now need contingency A, B, and C. And all of those need to be backed up by numbers and data and assumptions. You can, you can explain, then as any salesperson knows, first number you throw out there, you're anchoring them to that number.

rory-liebhart_1_10-01-2025_150825

why

emily-sander_1_10-01-2025_150825

And then you have to do reverse psychology to them.

rory-liebhart_1_10-01-2025_150825

yeah.

emily-sander_1_10-01-2025_150825

It. I mean, maybe we can just touch a little bit on, kind of an art form of here's what's realistic and reasonable, but we know we wanna be aggressive and we know aggressive and achievable you can do at the same time. So how do you, is that a judgment call? Is that

The Role of CFO in PE Partnerships

sweet-eddie-b_1_10-01-2025_150824

That's a conver, that's the conversation. So that's, that is where I, where I will stress it. Like, look, you don't, you have to be. You have to truly feel like you're in partnership with your private equity sponsor and you have to go look. Here's my, here's my scenarios, and this is largely the CFO, kinda to your point, Emily. There's you normally, in a private equity investment, you normally have like these three levels of connection. You've got your managing director, senior person that's interacting with the chief executive. You generally will have a. The director, vice president, principal level, that's interacting with your chief financial officer.

rory-liebhart_1_10-01-2025_150825

Yeah.

sweet-eddie-b_1_10-01-2025_150824

then you're gonna have some analysts interacting with analysts, essentially kinda doing a lot of the data, data work at, at this level where the CFO is working, they should be work. Any projections you're doing needs to be one communicated by the CFO up to the CEO. So COO doesn't get over his skis or her skis.

rory-liebhart_1_10-01-2025_150825

I've seen

sweet-eddie-b_1_10-01-2025_150824

Give numbers. Yep. Give numbers that don't, that aren't real. And then the second piece is these, this development of what the future is supposed to look like, needs to be collaborative at that CFO to principal, CFO, to vice president, CFO, to director level, so that they're walking into the board meeting, presenting. A consensus forecast or a consensus plan that management has bought off on and that the private equity guys have worked through. And, and a lot of that beating back and forth has happened in a collaborative way and a trusting way at those lower levels, so that that way when you get to the board meeting and you've got your senior person at the. PE firm and your senior person at the company are not dis are discussing it for maybe the first time the work has all been done. And if you surprise, it's when you surprise that's that's where the problem occurs.

Forecasting Methodologies

emily-sander_1_10-01-2025_150825

Is that, is that a methodology or a principle type of thing? Like for instance, you know, you come to partnership with the PE group, like we are gonna forecast aggressively. Like that's just, we're gonna lean in really hard and whatever you're gonna see from us is gonna be aggressive.

rory-liebhart_1_10-01-2025_150825

know. I

emily-sander_1_10-01-2025_150825

Or is it.

rory-liebhart_1_10-01-2025_150825

and true method of, of basically preventing presenting things is you, you always have a base case. You always have a stress case, and you always have an upside case. You're anchoring around the base case, generally speaking, but you need to communicate, you know, what, what, what the potential is both ways. And so I think that's the mechanical piece. I think what, what, ed, really important that Ed alluded to, or just that explicitly was like, have the conversation in a genuine way, like collaborative, like, like you, you're sitting at the same table. From the same direction. Looking at it as if you're already partnered and say, this is what we're gonna do, these are the ways we can outperform this. It's gonna require more capital, it's gonna require infrastructure, whatever, whatever that might be, type of business. Or like here's the exposure we have. Maybe you're in a consumer lending business and like the macroeconomic drivers based on, you know, um. Whatever elements of, you know, household income and all those things like unemployment, like here's what could go haywire, you know, but we don't believe that's gonna happen for these reasons. I mean, so you're not trying to sell against yourself, but sooner or later they're gonna form their own opinions. You'd rather have them form their own opinions based on reality. And, and really in a lot of cases, the reality is what the executive team. Knows about the business. Maybe they, they don't know everything they should, you know, so informed. Just, just, the point is don't, you're not serving yourself in any way. If you obfuscate information you, you

sweet-eddie-b_1_10-01-2025_150824

No.

rory-liebhart_1_10-01-2025_150825

make stuff up or you justify things.'cause very, these are professionals and they've seen it all already, so,

emily-sander_1_10-01-2025_150825

And I'm also thinking once you partner with PE and you have the ongoing forecast exercises you do, is it kind of finding that mind meld where like, okay, here's how we do forecasting and, and that's simpatico with

rory-liebhart_1_10-01-2025_150825

Yeah,

emily-sander_1_10-01-2025_150825

PE group's mindset around doing forecasting. Like I know for instance, there's a decision

rory-liebhart_1_10-01-2025_150825

way street on how that's dictated. I'll say that. It's like they have their way of looking at things and you could form your process to

sweet-eddie-b_1_10-01-2025_150824

and you're gonna have their way of looking at things.

rory-liebhart_1_10-01-2025_150825

Absolutely.

emily-sander_1_10-01-2025_150825

Rory, what is, what is the compression you mentioned earlier? Like the,

rory-liebhart_1_10-01-2025_150825

that's more of a stress case.

emily-sander_1_10-01-2025_150825

okay.

rory-liebhart_1_10-01-2025_150825

It's simply saying, Hey, this is the downside potential based

emily-sander_1_10-01-2025_150825

Okay.

rory-liebhart_1_10-01-2025_150825

factors In these scenarios, you could do something really extreme or you could just do something that says, oh, you know, seasonality in your earnings, or, you know, maybe, maybe a, a, a negative dim view on the. Economy influences your business depending on what it's, maybe you've got like a manufacturing business, the possibility of tariffs going from like 20 to a hundred percent is like real, you know, like of my former clients is in that exact space manufacturing. They're like, yeah, we have to project for the fact that tariffs are gonna crush us. So those are real conversations.

Understanding Exit Strategies

emily-sander_1_10-01-2025_150825

All right. The fifth and final fail for a founder when they're partnering with private equity.

rory-liebhart_1_10-01-2025_150825

Well, I'll throw one out. I don't know if it's the fifth or the final, so, it's like, it's one that I think a founder in particular and, you know, employees as well of a, of a founder purchased company. Like what's the exit strategy here? Like what's the end game here? Private equity does not mate for life. We know that. So what is the end game? You know, you may not have specific timelines, but like, are the types of discussions you have before you cut a deal. Like, it's like we're looking at how do we make one plus one equal three here? So what is the plan and what are, what are we gonna be expected to execute as a management team? I should say like they're gonna want to. How you expect to make it go, one plus one equals three, and how they can maybe support that. But yeah, what is the exit strategy? Very simply.

emily-sander_1_10-01-2025_150825

So going in with the end in mind, understanding your risk premium,

rory-liebhart_1_10-01-2025_150825

I'd want

emily-sander_1_10-01-2025_150825

all of those good things.

rory-liebhart_1_10-01-2025_150825

am I gonna get paid out again? Like, how am I gonna, like what's, what's my next bite at the envelope? If they, specifically to what Ed's saying is like if you roll your equity, which means you're taking less upfront, that's maybe like a requirement. You know, maybe not even negotiable, but like, okay, if I'm like deferring my compensation or my, my proceeds. Am I gonna be expected to not see liquidity for 10 years or are we talking like two or three years, like basic stuff? Like that's kind of important.

sweet-eddie-b_1_10-01-2025_150824

Yeah, I think the, the. Key is knowing you will transact.

rory-liebhart_1_10-01-2025_150825

Yeah,

sweet-eddie-b_1_10-01-2025_150824

And so the other side of it is

rory-liebhart_1_10-01-2025_150825

I

sweet-eddie-b_1_10-01-2025_150824

don't get too comfortable.

rory-liebhart_1_10-01-2025_150825

true.

sweet-eddie-b_1_10-01-2025_150824

And if you're performing well, you're gonna transact faster, most likely. And so as a result, the better you do, the more likely it is you're gonna be disrupted with a okay. We're gonna transact your business and so therefore we're gonna disrupt your apple cart. And I think some CEOs, the, the CEOs who are most successful have kind of avoided one through four, and then they get to five and they go and. I'm, I'm, I've figured this out and now you're telling me I'm getting sold to a strategic and I'm about to lose my job and my folks are gonna get laid off. Not that that ever happened. Um, but yeah. Yeah. So I'm gonna get sold to a strategic, I'm gonna, yeah. I'm gonna get my second bite of the apple and all that other good stuff. But I, I'm out of a job. I, my folks are getting laid off. I, you know, again, the baby I, the baby I made, now I figured out how to work with you guys, and this has gone well. Now it's gonna be like, well. No, it's, we're done. Thanks. Thanks for playing. You know, time time's up and you know, we're gonna flip this business. And so recognizing that that business will transact and maintaining a healthy emotional. State with respect to the business, knowing that one, it's not yours anymore, and two, it will go away

rory-liebhart_1_10-01-2025_150825

Mm-hmm.

sweet-eddie-b_1_10-01-2025_150824

you and the business will get split normally after. Again, going through another exercise of transaction that you went through the last time, um, is just something to keep in mind and it's gonna be disruptive. You're gonna be expected to actually, you know, you may be asked to do window dressing going into it. So you may be asked to do some non hires, preliminary layoffs, you know, kind of do some stuff six months in advance. It's gonna make it much harder for you to hit your numbers and you'll be under more pressure to hit your numbers because you're trying to, they're trying to get it ready for sale. And so all that is just a long way of saying. You will transact, it will be disruptive, and you might've figured out one through four and avoided those four, and you're still gonna get whacked with number five because you're probably gonna be comfortable at that point and feel like you got this thing mastered. And that's exactly when they're gonna come in and go, okay, time to sell. I.

Opportunity Costs and Entrepreneurial Freedom

rory-liebhart_1_10-01-2025_150825

right. Yeah. And actually adjacent to that, I'll, I'll, I'll lump it under this one, but it could actually have gone through another, gone under a couple of the others is like, what does doing this deal lock you up from doing? In other words,

emily-sander_1_10-01-2025_150825

Opportunity costs.

rory-liebhart_1_10-01-2025_150825

I mean, if you are brilliant in this space you all of a sudden get six months into that deal, post-sale, post all your things you signed and you're like, I hate this. I'll just go freaking do this myself again. No, you might not.

sweet-eddie-b_1_10-01-2025_150824

Yeah, you.

rory-liebhart_1_10-01-2025_150825

be locking yourself out of that and, and in, in exchange for the, the compensation you took on the deal. So, know, that's another element of to, to be. Again, I'm honest with yourself about is like, is this, is this possible? Are you possibly content where you're no longer gonna be able to be an entrepreneur in this particular space

emily-sander_1_10-01-2025_150825

Well, well, there's,

rory-liebhart_1_10-01-2025_150825

or something? Who knows? You know?

emily-sander_1_10-01-2025_150825

well there's like elements of like control and ego we've talked about, but it's also about like what is important to you right now? what is important to you right now? By the way, the answer to that question changes as you go through life.

rory-liebhart_1_10-01-2025_150825

true.

emily-sander_1_10-01-2025_150825

check, check in with your.

rory-liebhart_1_10-01-2025_150825

Alert.

emily-sander_1_10-01-2025_150825

Spoiler alert. Yeah. Um, but, and what you think is important might not be what's actually important when you actually go through it. So,

rory-liebhart_1_10-01-2025_150825

circumstances might inform that. You know what I mean? So

emily-sander_1_10-01-2025_150825

but we were all just talking about that before we jumped on air today. Like what's important and that's, that's changed or is changing for each one of

sweet-eddie-b_1_10-01-2025_150824

Mm-hmm.

emily-sander_1_10-01-2025_150825

just, it's life. It's life. But okay.

rory-liebhart_1_10-01-2025_150825

is

emily-sander_1_10-01-2025_150825

were, those were five, not the only five. I shouldn't have said Final Five, but we could have done, we could do part two.

rory-liebhart_1_10-01-2025_150825

through 10

emily-sander_1_10-01-2025_150825

We,

rory-liebhart_1_10-01-2025_150825

uh, next, you know, down the road.

emily-sander_1_10-01-2025_150825

we can do mistakes that PE firms have made.'cause they, they're

sweet-eddie-b_1_10-01-2025_150824

Oh boy.

emily-sander_1_10-01-2025_150825

either. So, I mean, this is just tip of the iceberg, but just heading off like the major ones that people listening like, please, please avoid these, if you can really think through them. Make sure you know what you're getting into.

rory-liebhart_1_10-01-2025_150825

Listeners like, comment, subscribe, and if you have questions, hit us up. You know? Absolutely. love

emily-sander_1_10-01-2025_150825

We are here to help.

rory-liebhart_1_10-01-2025_150825

there's only so much we can cover in 35, 40 minutes, you know.

emily-sander_1_10-01-2025_150825

we've got some great comments and questions, clarifying questions in the comments, so drop'em the comments and you can always reach out to us with our contact info in the show notes. But thanks, ed. Thanks Rory.

rory-liebhart_1_10-01-2025_150825

you.