Understanding Private Equity and Venture Capital Dynamics
Navigating the worlds of private equity (PE) and venture capital (VC) can feel overwhelming for business leaders. These distinct types of investment play a critical role in fueling innovation, sustaining growth, and driving businesses toward market leadership. Whether you're an entrepreneur seeking funding or an executive evaluating expansion opportunities, understanding the mechanics behind these funding models is essential.
In this session recap, we explore insights from Mahdlo Executive Advisors’ Leap Forward series discussion: Venture Horizons: Assessing the Pulse of PE/VC Dynamics. Hosted by Jim Tax, the conversation features two expert executives, Jordan Trit and Kevin WS, who share their experiences and actionable advice on mastering these funding strategies.
Let’s break it down step by step, uncovering key takeaways and strategies.
The Role of Private Equity and Venture Capital in Modern Business
Private equity and venture capital are not just funding sources—they’re catalysts. Each brings unique value and imposes distinct expectations on the companies they invest in. PE usually focuses on established organizations, aiming to optimize operations, scale revenues, and achieve precise return goals over a defined timeframe. VC, on the other hand, supports early-stage companies, betting on high potential growth fueled by innovation.
For founders and executives, success comes down to finding the right kind of partner. It’s a lot like matchmaking. Aligning goals, expectations, and timelines ensures a productive collaborative relationship.
Meet Our Experts: Deep Industry Experience
The panelists, Jordan Trit and Kevin WS, come with impressive credentials and distinct perspectives, giving us a well-rounded understanding of PE and VC. Jordan, CEO and co-founder of The Panther Group, brings over a decade of expertise in cannabis-sector investments. His firm manages multiple funds and helps businesses achieve growth strategically while meeting investor expectations. Having deployed capital into 25 early-stage ventures with multiple exits, Jordan knows what it takes to navigate this space successfully.
Kevin, a seasoned executive with 25 years of experience in advertising and marketing, offers the viewpoint of a recipient of funding. He's worked across industries like finance, automotive, and consumer goods and has personally bought, built, and exited businesses. Currently the CMO of Bedrock Manufacturing, Kevin provides invaluable insights into securing funding and delivering results for investors.
Private Equity vs Venture Capital: Key Differences
To start, it’s crucial to understand how PE and VC differ, not just in strategy but in execution and expectations. Here’s a quick breakdown:
- Private equity deals with companies that are more established. Investments prioritize operational efficiency, balance sheet improvements, and strategic growth, often through leveraged buyouts or acquisitions.
- Venture capital is targeted at startups and early-stage businesses. The goal is to fund innovation, grow market share quickly, and achieve significant valuation gains.
Both approaches require clear exit strategies: PE firms often work within a 5–7-year horizon, while VC funds may push for growth even faster, depending on the market.
Strategic vs Passive Investors: What to Look For
One of the first things to evaluate when choosing an investor is their level of involvement. Some investors, often passive, provide the funds but little else. Others are more strategic, bringing extensive industry knowledge, connections, and even operational expertise. Both approaches can work—what’s essential is ensuring compatibility with your business goals.
Think of it this way: Would you prefer an investor who simply observes from the sidelines, or one who actively helps you sharpen your game plan? For example, Jordan shared that the majority of investors he works with today aim to be strategic, especially in sectors like cannabis, where banking restrictions and industry-specific challenges make expertise even more valuable.
Realistic Valuations: The Key to Long-term Success
Many business leaders fall into a common trap: overvaluing their company. While it’s tempting to aim high, inflated valuations can backfire. Investors base decisions on tangible data—like cash flow, customer acquisition costs, and projected returns—not optimistic assumptions. Jordan explained that when valuations are set too high in early rounds, companies risk raising money later at significantly lower rates, also known as "down rounds."
Here’s the secret: Always work backward. Consider your expected exit value and determine what milestones and metrics you’ll need to justify it. Early-stage businesses, especially in volatile sectors like tech or cannabis, must be prepared to adjust their expectations with market realities.
Understanding Tangible and Intangible Value
Valuations go deeper than just the balance sheet. Successful investors and operators assess both tangible and intangible value. Kevin, reflecting on his time at Smile Direct Club, gave a great perspective on this:
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Tangible Value: This includes measurable factors like cash flow, sales projections, or customer acquisition rates. For instance, Kevin noted that their email subscriber base provided a clear, predictable revenue stream over two to three years.
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Intangible Value: Factors like brand recognition, customer loyalty, and organic traffic hold weight, even if harder to quantify. When people search for your brand by name or engage directly with your company, it reflects significant goodwill.
Ultimately, strong businesses balance both. If the brand can organically drive customers without constant paid marketing, it’s a clear sign of long-term value.
The Growing Role of Alternative Funding Sources
In the last decade, family offices, private credit options, and specialty funds have expanded funding opportunities for companies. These sources bring flexibility compared to traditional banking or early-stage VC/PE funding. They’ve also become popular in industries with regulatory challenges, like cannabis or emerging tech.
Jordan emphasizes that businesses should think beyond traditional channels: Does private credit fit your cash flow needs? Could a family office offer both funding and connections for distribution? Thinking creatively about funding can unlock new possibilities without diluting ownership unnecessarily.
What Happens After the Check Clears? Expectations Post-Investment
It’s easy to think of funding as the finish line, but it’s really the starting pistol. From the investor’s perspective, growth targets are non-negotiable. Whether it's organic growth through better marketing or new market launches, investors expect results.
Jordan explains that no investment is without its hurdles. Regular communication between operators and investors ensures alignment, adjusts strategies when needed, and focuses on measurable progress. He likens the process to maintaining a car—you need a plan, but you also need the flexibility to pivot if the road ahead changes.
Likewise, Kevin shared advice from the recipient side of funding. Be transparent. Know exactly what you’ll do with the money before the check hits your account. Investors appreciate precision. If the goal is to expand marketing efforts, be ready to demonstrate ROI potential. If it’s for R&D, outline the research timeline and milestones to measure success.
Handling Additional Rounds of Capital
Few companies succeed with a single round of investment. The reality? Growth takes time and often more money than expected. Jordan described how seasoned investors anticipate this dynamic and plan for multiple funding rounds. What’s critical is learning and showing progress with each phase.
Transparency makes all the difference. If things didn’t go as planned after the first round, own it. Demonstrating accountability and a practical plan for adjustment can build investor trust rather than erode it.
Lessons for Both Sides of the Table
For companies and investors alike, success boils down to preparation and smart decision-making. Operators must manage expectations, build realistic growth stories, and maintain open lines of communication. For investors, the goal is to refine strategies, learn what works, and deploy capital more effectively over time.
Kevin summarized the journey well: Your first investment raise is never perfect, but it’s an opportunity to learn, iterate, and improve. It’s not failure if you didn’t hit every target—it’s failure if you don’t adjust and grow.
Final Thoughts
Private equity and venture capital can be game-changing tools, but they aren’t one-size-fits-all solutions. Success lies in understanding the nuances of each, finding the right partners, and communicating effectively throughout the process.
As Jordan highlighted, even experienced investors evolve with every fund cycle. Similarly, operators must mature with every round of funding, learning how to navigate challenges and capture opportunities. The road may have detours, but with the right knowledge and partnership, it leads to growth and success.
If you’re a leader evaluating your funding options, take these insights to heart. Preparation, transparency, and strategy pave the way forward.