Beyond Q&A | Martin Myers | pePartners
Q: Why pePartners?
A: pePartners was created to solve a problem for companies looking for equity partners to help grow their businesses and owners thinking of exiting. At its core, pePartners is a more efficient marketplace for connecting owners with the best equity partners to achieve the owners’ goals.
Business owners often get barraged by intermediaries, such as business brokers and investment banks, about raising capital or selling their businesses. There are good intermediaries in the marketplace, but because they are dependent on deal fees, their objectives don’t always align with the best outcome for the owner. Owners know this, and our conversations with them and other industry influencers convinced us that there was strong need in this space.
pePartners specializes is matching founders and owners with equity partners that bring value beyond capital investment. Simply put, we excel at helping companies get to the next level and enabling owners to achieve their goals. Our business model is designed in a way that enables us to always do what is in the company’s and owners’ best interest.
Q: Why now?
A: First, platform models are transforming the business landscape. The platform models of today are highly efficient technology-enabled marketplaces that connect users and producers in a quality-controlled way (think: Uber, Amazon, AirBnB, YouTube).
Secondly, there’s a shift taking place away from sales models and toward marketing models. Consumers expect to be better informed prior to making a purchase, demand more transparency, and want more control over the process.
pePartners’ business model is at the confluence of these two trends. The efficiency of our platform model means that owners don’t have to pay to join pePartners. Our revenue is generated from capital partners who pay a subscription to join the platform and a fee based on a successful transaction.
Lastly, because pePartners is meeting a need that is unaddressed, we believe there’s pent-up demand from owners and founders looking to exit or grow their businesses. We’re confident it’s the perfect time for a business model like ours to enter the marketplace.
Q: Why does pePartners position itself as the first platform of curated capital partners and advisors dedicated to helping founders and owners to grow or exit?
A: There are other platforms in the marketplace that connect owners and capital partners, but they are not curated and exclusive. Most capital providers and companies who are willing to pay a fee are able to join these platforms. Our platform is quality-controlled, meaning it’s not a fit for every equity provider or every company. Our objective is to make the process more efficient, not waste anyone’s time.
Unlike other platforms, owners don’t have to pay a fee to join pePartners. Instead, equity partners pay a monthly subscription to join the platform. So, while we do earn revenue from equity partners based on transactions, we’re not deal dependent and can remain focused on what’s best for founders and owners.
Q: What verticals do you see emerging in the near- and mid-term?
A: We rolled out with the middle market private equity vertical. This space includes companies with pre-tax profit in the range of $3 million to $50 million. However, private equity firms will often look at companies below this range if they already have a similar company in their portfolio.
We also have a few member companies in the venture capital vertical. Our VC focus is late-stage companies that have significant revenues and are looking for investors for continued growth. Early stage companies are less of a fit unless there’s an obvious product market fit with a substantial market opportunity. We’re glad to talk to companies in any stage—if they’re not a fit now, they could be with additional growth.
Real estate is another vertical we are in, and expect continued growth. We also plan to expand our network of mezzanine lenders in the near-term. Mezzanine lenders can be an attractive option for owners who are looking for capital but may not need the strategic lift of a private equity firm.
Another important vertical is impact investing. This is a growing area where the emphasis on long-term social impact and the double or triple bottom-line aligns well with our emphasis on equity partners that focus on more than just equity. We have a roster of member companies that will be of interest to impact investors because of the significant and measurable sustainability component of their technology.
Q: What’s the biggest misconception about “growth by private equity”?
A: There are many prevailing myths and misunderstandings about private equity and venture capital. One such myth is that PE and VC firms will come in and take over control. In reality, there are a significant number of capital providers that view their investments in companies as partnerships and align interests with owners and management teams accordingly. pePartners has a continual vetting process to ensure that capital partners on our platform meet our expectations for excellence and integrity, and are the right fit for the right business.
PE and VC firms can bring tremendous intellectual capital and strategic value to help companies accelerate growth. As an example, PE firms typically earn two to three times their invested capital during their typical holding period. For owners, this presents an opportunity to own a smaller piece of a bigger pie. pePartners can help owners evaluate the risk-adjusted benefit of keeping equity in their companies so that they might benefit from this accelerated growth.
Q: What’s your advice to an entrepreneur who has multiple funding options?
A: It’s wise to look at multiple options and do a cost-benefit analysis of each option. Strategic investors (i.e., companies looking for M&A opportunities) should be included in this consideration. Some fast growing startups might already be on the radar of VC firms. In this case, we can potentially bring one or more VC firms that might be both a fit and are additive. It’s important for businesses to do their homework and find capital partners that align with their model.
Q: What new trends do you see emerging within the late-VC, private equity space?
A: There’s a clear trend toward PE and VC firms bringing additional operating and strategic resources to support and grow their portfolio companies. There is a tremendous amount of capital flowing to private equity and venture capital firms because of their performance, relative to other asset classes, over the past decade. This is good for owners because it means more competition as more money flows into the segment—increasing the supply of capital. This also means that PE and VC firms are doing more to add value to their investments and differentiate themselves from competitors.
Also, interest rates have remained low which is positive for asset values. Interest rates are likely to rise, but we don’t think this means owners should worry about the impact of rising rates on values and rush into something before they are ready. The most important variable, when an owner is ready, is to find the right partner that is aligned with their goals and objectives. pePartners’ role is to help businesses get ready and find that partner more effectively and efficiently.
Martin M. Myers is managing partner and founder of Saint Louis-based pePartners.Martin’s 25 years of experience includes executive and management level positions at both startups and top-tier financial institutions, as well as a client roster of leading global private equity firms. For additional information, contact him at mmyers@pePartners.net or follow him on Twitter at @martinmmyers.