What Is An Operating Partner?
I receive many emails and inquiries with a similar question, “What is an Operating Partner at a PE fund?” I figured I’d use OP #210 to describe the specific role that I have and some of how a PE fund is structured. Other people have written about this topic too and offer some good thoughts.
Let me start by caveating two things:
1/ Not all PE funds are the same. Every fund looks at the world thru a different kaleidoscope and, therefore, may organize differently. So use my examples as one data point in your understanding of how PE funds are arranged
2/ I am now going on year six of my Operating Partner role, and as I’ve learned through my other Operating Partner friends at other funds, an Operating Partner is a term with many job descriptions. So, every time you hear the word Operating Partner, you may want to ask a bit more as the role differs. More on that below.
OK, let us begin.
In short, a PE (private equity) fund invests capital into businesses to increase their value and at some point in the future, will create a liquidity moment (public offering, change in control, dividend, etc.) so that shareholders can get paid.
The time horizon I use to reach liquidity is 5-7 years from the initial investment. Note, investments can reach a liquidity moment pre-5 years, and others reach that moment post-7-years.
There are three core functions (in my mind) that a PE firm must have to be successful.
1 - Investment team. This is the team, also called “deal,” that comes up with hypotheses and scans the market for opportunities to invest. Some funds are super reactionary and wait for investment bankers to reach out with CIMs (confidential investment memorandums) - a fancy word for “deck of a business for sale.” The way this team operates varies across funds but is most often what you see when PE funds are portrayed in TV and movies.
2- Portfolio team. This is the group of people responsible for the life of the investment during its time with the fund. This group partners with the CEO and management team and tries to be as helpful as possible to increase the velocity of the business. Some funds have massive portfolio teams, and others do not have them at all. In some smaller funds, the investment team is the portfolio team.
3- Administration team. These folks behind the scenes enable the fund to operate by handling all finance, administration, technology, investor relations, fundraising, and more. These roles often go way overlooked but significantly enable the fund(s) to be most impactful.
But where is the Operating Partner?
It depends on the fund but usually sits in #2, the Portfolio team, above. I say this based on the dozen-plus OPs that I’ve met in my time.
Here are all the different incarnations of an Operating Partner that I’ve come across. Note, there is no right or wrong, and often multiple descriptions are grouped:
A full member/partner of the fund is the senior-most position prior to becoming a Managing Director.
A full member/partner of the fund is a subject matter expert (SME) on a particular topic such as digital, procurement, operations, or go-to-market
An advisor to the fund who lends credibility and help on an as-needed basis
A near full-time consultant who is an SME on a specific topic
A near full-time consultant who is not an SME but rather a generalist who helps with portfolio companies
I’m sure there are 1-2 that I forgot about.
The description of my role as an Operating Partner is a mashup of a couple of the bullets above. I am a partner of the fund, an SME on a particular topic (digital, growth), and the senior position on the portfolio side before becoming a Managing Director.
So what are my day-to-day responsibilities?
I spend about 70% of my time with 3-4 companies, and the remaining 30% is split between the rest of the companies in our portfolio, deal pursuits that are happening, diligence that we are in the middle of, working on building out our talent bench, and building internal knowledge about my topical area.
The 3-4 companies that I am concentrating on often change - usually every 60-90 days - one rotates in/out or so. There’s no magic formula, just what I have observed in this role over the past five years.
I have broken my role down into five areas:
Talent: do we have the right senior functional leads at our portfolio companies (or deal pursuits) to drive asymmetrical returns? These are the roles of Chief Marketing Officer, Chief Digital Officer, Heads of E-Commerce, and digital Chief Product Officer.
Process: do we have the proper process and KPIs in place to allow us to move fast?
Partners: do we have the right partners in place to enable us a better chance of winning? Managing all the partners and getting their A-Team(s)
Technologies: do we have the right ad/martech and commerce/sales tech stack to allow us to scale and run effectively and efficiently?
Network Effects: how can I leverage our world-class leaders across our portfolio to enable them to connect and learn from one another
So that’s at a high level of what I do daily. Again, all Operating Partner jobs are slightly different, so always ask clarifying questions when meeting with folks about an OP position.