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What role does an investment director have on your board?

A CEO and investment director have one of the most important relationships in private equity. But what does that really involve, asks Tenzing Co-founder, Christian Hamilton.

As a first-time private equity CEO, you’ll likely have fallen for the charms of an investment director. They’ll have put all your fears and worries aside to help you dive into a whole new chapter of your business. And now, suddenly, there’s a new person on your board who’s there to stay for the next four or five years. But what role do they really have to play?

The job of an investment director – or deal lead, as they’re known at Tenzing – is very simple. They’ve deployed part of their firm’s fund on the investment in buying a share of the company. Their responsibility is to take that capital and grow it over the investment period. Their core expertise is in building businesses with high capital value. They’re constantly asking, “If I make the following change to the business, will it add more value?”

The deal lead should be a CEO’s trusted confidante. Together, they should be utterly aligned on their journey towards making the business the best it can be. That deal lead is only likely to make one investment a year. So each investment matters so much, that a CEO should expect to develop a close, personal bond with them, with a lot of contact. As a CEO, you’re really key to their career, and they deeply care about the business excelling.

There are two people that wake up in the middle of the night thinking about a particular investment – the CEO and the deal lead.

The CEO might even be more aligned with the deal lead than their chair. They might be on a more similar path, in terms of both needing each other to succeed, for slightly different reasons. It’s a peer relationship, between two people with a different set of experiences. They’re not subordinate and there’s no politics.

What can a CEO expect from their deal lead – and vice versa?

A deal lead usually hasn’t run a business, but they might be on three others at the same time. They will take a lot of learnings from each one. They can give really good advice, as they’ve seen things in different businesses which might be relevant.

Of course, they’ll never understand as much as a Founder does. That’s why they usually spend a week in the business early on, so they get to know the team. They don’t want to ask silly questions later, such as what a particular role or person is responsible for. A good deal lead doesn’t want to undermine their CEO or embarrass them publicly.

By the same token, if a deal lead is perceived as not knowing what’s going on in one of their businesses, this can cause embarrassment for them within their private equity firm. They can then become more controlling over a business. So a CEO should try and help their deal lead avoid any surprises. If something is about to go wrong, it’s time to tell the truth quickly and openly. Even if there isn’t a resolution yet – as long as you’re working on it.

You’re in the same boat, and there’s no early departure. If there’s a leak in the boat, they need to know before it’s flooded, so you can fix it together. CEOs should share their thinking with their deal leads, regarding them as a partner.

A CEO should also view their deal lead as a highly connected individual in the business community. They’re someone who can refer them to others who have been through similar challenges. If there is an issue in a growth opportunity the CEO has seen, the deal lead may have a contact they can connect them with to discuss possible solutions.

Building long-term trust

When you’re a first time private equity CEO, it’s easy to put your deal lead on a pedestal. They’re the gateway to a new level of success. But – they aren’t the CEO, and you don’t have to take every passing comment they make as gospel.

Equally, a CEO doesn’t have to do something major purely because the investor wants it. The deal lead may well have an interesting view you can discuss. A strategy might come out of it that includes that view – or it might not.

A good deal lead should set up rules of engagement with a CEO, welcoming heated debates, but ultimately recognising it’s the CEO’s call to do what’s best for their business.

When going into a private equity investment, a CEO is effectively getting married to the deal lead and private equity house for the next four to five years. If a CEO has multiple bids to choose from, they might feel compelled to go for, say, a highly prestigious private equity house, over a lesser known one with a deal lead they really like. But, you will spend a lot of time together. So if you don’t enjoy a particular person’s company, I would say choose a different house.

Private equity is an intense, but hopefully, rewarding journey. A lot of this can be down to the relationship between a CEO and a deal lead. If it’s fun, and you enjoy it, you are likely to make more money, because you put more energy into it. If you run into a crisis, you will end up with a better outcome with a deal lead you’re aligned with.

ABOUT THE AUTHOR

Picture of Christian Hamilton

Christian Hamilton

Christian is Co-Founder & Joint Managing Partner of Tenzing. Over the last fifteen years, he's backed many entrepreneurs and management teams, helping them grow their businesses and develop internationally. He leads on investment strategies and investor relations and is passionate about creating a culture of shared learning and continuous improvement.
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