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.

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Chicago Private Equity

One of the most difficult problems I had when I started my first business was who to trust. Since I didn't have any network to begin with, just an idea, I had to form a complete network myself. This was for everything, supplies, trucking contacts and suppliers. All of my employees came from ads, since there was just me and my partner in my business, there were no referrals for employees, we had to guess and do our best to interview. We really didn't have the budget or skills to hire the correct people.

I tried looking at joining entrepreneur groups at the beginning but I was working 16 hours a day for the first full year so there wasn't time and I don't know if my marriage would have been able to take more of me being away. So, I ended up making mistakes. Lots of them. All of them. End to end and back to back. I messed up my sales, marketing, plans and shipping. I didn't come from an entrepreneurial family so I didn't have someone saying "no, don't do it that way." Although I wish I had.

One of the things I wanted to establish here was not only funding, but the idea of the ability to tap into the network I have built over the years and then tap into my network's network. There is every conceivable type of help available, mostly in tit for tat arrangements, where advice is free as long as you pay back into the network at some point. Most mistakes are avoidable, some aren't. Choosing the right network should be your first goal.

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