Taking money from whom? How to find private equity.

The private equity markets are really inefficient, and that's why they exist.  One of the great things that Michael Milken did was bring money down to the middle market in the form of junk bonds.  That way if you were running a smaller company you had access to capital.  He did it for a pretty big fee which was extracted from the companies that got the bond proceeds and the fees charged to investors that wanted to allocate capital to that part of the market.  (this is another case of it's easier to get rich selling picks and shovels vs. mining for gold).  The most important part of what he did was he created a market where there are buyers and sellers and you can find both parties.  In private equity, that isn't the case, you have to go hunting really inefficiently.

Here's my basic process for trying to find a company.  I start by asking around through my network if anyone knows a company that 1)  needs capital and 2) needs management or marketing help.  Typically that yields no results.  The next thing  I do is call a few banks to see if anything is in their work out division and that typically yields nothing or next to no results.  I don't know if the brother of the banker typically gets these deals but they sure aren't shopped efficiently from what I can find.  I also look at syndicated networks like angel networks but they were tending to take such a cut out that the entrepreneur lost a cut and then I have to pay a management fee every year on the money invested.

I've found the best way to find good people is online through message boards, forums and blogging.  Getting involved in the community and looking for companies that actually are asking questions and soliciting advice.  Then again, the online market is what I know and am comfortable with.

Link back to this post at Chicago Investors or email me at chicago venture