Entrepreneur – UAE

When it comes to the relationship between entrepreneurs and private equity (PE) firms, it is, more often than not, tensed and tangled. On one hand, we have entrepreneurs that aspire to become the next Bill Gates, and on the other, we have the reality of PE firms fighting over control of the companies they invest in, and eventually alienating the founders. In between the two scenarios lies a hazy area of conflict that transcends into admiration with time. This dilemma stems originally from an inner conflict within the entrepreneurs themselves: they are trapped between turning their innovative ideas into profitable businesses, and maintaining control over these businesses at any price. Until the two parties find common ground between them, entrepreneurs won’t be able to realize their dreams, while PE firms won’t be able to facilitate the path to those dreams.

Entrepreneurs live by a belief that goes something, like, “I came up with this revolutionary concept, and I’m the most suitable to manage it.” This belief is true at the initiation of any venture, since the entrepreneur is the concept generator, and he/she is fully aware of the market needs for this concept. The entrepreneur is also the founder of the first business environment of this concept by employing a team and forming an organization at its early stages. It is this strong level of involvement and commitment that makes the entrepreneur deeply attached to his “baby,” and be willing to sacrifice time and income just to see his dreams of future wealth and leadership materialize.

Not long after setting up their establishments, entrepreneurs start to realize that their passion, commitment and financial resources are not enough to lead these establishments. Once the first product of the organization is launched, entrepreneurs find themselves in front of a new business challenge. It’s a challenge that requires a completely different set of skills than what was needed for innovation, and requires an environment with a high level of managerial and administrative skills in marketing, financial planning, customer services and corporate governance- most of which are lacking in most first-time entrepreneurs. It is at this moment, entrepreneurs start looking for outside investors starting with friends and family, moving to angel investors, and eventually entering the domain of PE firms.

It is very natural for entrepreneurs and PE firms to start off their relationship on the wrong footing. After all, entrepreneurs initially view PE firms as having a completely conflicting agenda to theirs- they think PE firms are expected to acquire a substantial stake in the business at the lowest possible valuation, they will seek to influence decision making, they want to attempt to control any major spending on manpower or capital items, and they will overburden the business with debt. These expectations push entrepreneurs into the “stay alert” mode, and make them wary of dealing with PE firms. However, reality forces entrepreneurs who seek to substantially grow their business into one of two directions- either shake hands with a PE firm and take the challenge of working within their system of high-risk high-reward, or insist on being the “kings” of their home turf and risk getting stuck in the minor leagues, if not striking out altogether.