This episode explores the complexities of working with private equity firms from the CXO perspective, specifically focusing on employee equity and the due diligence process. Against the backdrop of a previous episode's cliffhanger, the discussion delves into the challenges of allocating employee equity during buyouts, highlighting the varying approaches taken by founders—some providing equity, others making post-close arrangements. More significantly, the conversation clarifies that post-close employee equity comes from the private equity firm's funds, not the founder's, a crucial point often overlooked. For instance, the hosts discuss the "parade of terribles"—unresolved issues like unpapered equity promises, inadequate customer records, and unclear software ownership—that can derail a deal. As the discussion pivots to the role of investment bankers, the hosts emphasize their value in navigating these complexities and securing better deal terms, even if it means limiting the number of potential buyers. Ultimately, the episode underscores the importance of proactive planning, open communication, and a clear understanding of the financial implications and potential challenges involved in working with private equity firms.
