This article is written for the following:

  • People currently in an operating partner/venture partner role
  • Those considering moving into the operating/venture partner role
  • CEOs who currently work with operating/venture partners
  • Managing partners who are considering the operating platform

[Editor’s note: This article was drafted Dec 2023 and on the day of publishing, this insightful piece from Christopher Conti came out – We haven’t spoken about my article, but I thought it important that you see his if you are considering a move to PE/VC as an Operating Partner… Now, for my perspective (related)]

I am convinced that we are on the cusp of a significant change in the way that private equity and venture firms resource to support their portfolio companies and fully expect some alternative views in response (All perspectives invited and welcome). I shall lay out my case below and then make some specific recommendations for you, specific to each of the above personas.

[I will shorthand the role as ‘O/V Partner’ below. For clarity, they are very similar roles but vary with stage – Venture partners typically work with earlier-stage companies and are less likely to be interim executives than Operating Partners, who often stand in as needed.]

My contention is that in a world of open-source best practices (scoured and updated daily by LLMs), the true value of O/V Partners is not knowing the playbook/best practices, but knowing how to get people to apply/adhere/execute on it. IE Their ability to leverage a deep network and influence executives to move in a better direction is far more valuable than arriving with a framework for thinking about a playbook. Let me tell you why and what this means for you…

Where the role has come from

In the 1990’s the world of private equity had a coming of age of sorts – The 80’s was characterized by the type of deal featured in the book ‘Barbarians at the gate: The Fall of RJR Nabisco” – I read this when it came out in 1990 and was enthralled to learn about how power dynamics, personal interests and greed could really screw up a business. It was the first leveraged buyout (Acquisition done with a lot of debt) that I learned about, and it really affected the lens through which I viewed private equity.

In the 90’s investing professionals really leaned into getting operating expertise from successful executives at the CXO level. The O/V Partner helped with due diligence and created portfolio company (PortCo) value through advice and mentoring.

Valuable for the above alone, the role is also a beacon to both Limited Partners (investors in the fund) and to executives of an acquired entity (each of which has equity stakes after the transaction). Firms like Greathill Partners, Marlin Equity Partners, Insight Partners, K1 Investment Management etc, have invested in bringing some of the most impressive operators either in-house or within the fold on a fractional basis.

The current trend

Now that the incredible bull-run past 2008 has hit some bumps, many of the firms that had loaded up with expensive, full-time operators are looking at different models. I will argue that the pre-requisites for loading up on full-time operating partners are falling away except for the very largest of funds. Two pre-requisites are:

  1. Surety of raising the next large fund (To capture the 2% management fee that pays the salaries); which is predicated on realizing distributions (returns expressed as TVPI or DPI) that make the asset class attractive. This has been relatively consistent up until 2021. This is far from a surety – Now we are seeing new funds raised at a much more modest pace/size, and, in some cases, firms shutting down due to an inability to raise (We will see much more of this in 2024).
  2. A set of proprietary insights based on the unique expertise of the team or data from the portfolio. Everyone knows everything (almost): The biggest firms have a portfolio large enough to generate insights that will arguably create ‘alpha’ (excess returns) through leveraging that insight. In the future, I do not view the knowledge (from experience/academia) of the partners within these firms as a differentiator [O/V Partners, read on before you troll me]. I feel that the transition teachers/professors have gone through is very analogous to what will happen here – The ‘flipped classroom’ where students get the content prior to class and use the live experience to problem-solve is very apt. O/V Partners can point PortCos to content, but the real value is in problem-solving with them, with a focus on behavioral change. Just because you know that you should run a certain playbook doesn’t mean you will.

The value that O/V Partners will bring in the future

For the past seven years I have been leveraging my experience as a B2B sales leader to support companies as small as $5M ARR up to giants like Salesforce and there is one thing I keep realizing:

Executives know what to do, they just can’t seem to get their people to do it.

In a world where I can ask one of many AI tools to give me a specific and detailed playbook/process for almost any function, the real trick is getting it implemented. The real gem is the O/V Partner who has been through the change management dozens of times, and has the executive presence/gravitas to coach teams through an improvement process. Knowledge will be so democratized in 2024 that any advisor/consultant will earn their keep not through bringing out the ‘How to’ book, but rather, the ‘How will’ approach of getting change through awareness & desire for change at all levels of the organization.

Ensuring the role still adds value

If the frameworks for determining a best practice are generally open-sourced and discoverable through LLMs, then for most contexts I would see the following as the perfect O/V Partner:

  • Has seen enough different contexts to know what prevents successful change (IE You can’t just hire the 20 year Oracle veteran)
  • Is adept at knowing the right questions to ask in order to direct you to the best approach (Key point: They don’t need to pull a playbook out of the bag because we can all access them now – Jacco Van Der Kooij of Winning By Design made an excellent point to me years ago (I will paraphrase him):

We can open source everything because companies will still need our expertise to make it happen.

He is right – In the generative AI world, knowledge is a commodity, the ability to act on it is where the value is.

So what next?

The next generation of O/V Partners will certainly have domain expertise, but this is not enough – They will have some extra ‘pixie dust’ – The high EQ coaching competency that leans toward legends like Bill Campbell, the ‘CEO Whisperer of Silicon Valley.* What we saw in 2022/23 is the need to support CEOs and executives by helping them make hard decisions and to navigate the ‘people dynamics’ challenges that are front and center during a downturn. 2024 is going to be another year of uncertainty and I suspect that operating groups will look to invest in leadership advisors like Ben Anderson and I won’t be surprised if profiles like this are brought in-house.

*Here is a great paraphrasing of an interview with Bill from 2013, which gives you a feel for what a great coach/mentor/advisor does.