An operating partner is a term generally used by venture capital (VC) and private equity (PE) investors to describe an external resource hired to support privately held companies. An operating partner is usually secured by a medium to long term contract, twelve to thirty six months, and is incentivized with a combination of salary, performance bonus and carried interest (equity) in the portfolio investment.
Operating partners are proven business leaders with domain expertise and established track records of building shareholder value. Operating partners are capable of identifying emerging needs, differentiating issues from opportunities, while leveraging their professional networks to successfully lead portfolio companies. They are usually former CEOs, COOs or CFOs with significant experience in the VC or PE’s target industries and typically focus on strategic planning, commercial growth, operational efficiency and financial controls. An operating partner is leveraged for their analytical skills and industry experience to help solve the problems facing portfolio companies.
Role and Responsibilities Edit
The role of an operating partner can span the private investment cycle, from due diligence to post transaction integration through to a liquidity event and/or exit. Operating partners are leveraged by investors and boards as a catalyst for change, as coaches or mentors and in some cases, to serve as “sparring partners” for management. Operating partners may oversee short to medium term as well as long-term operational improvement programs for a portfolio company. They may also support management in day-to-day operations as interim management, board members or as external advisors.
All VC and PE firms seek to maximize the value of their investment. In recent years, the industry has experienced increased pressure to drive operational value creation – in other words, shifting focus from leverage and multiples arbitrage to increasing the fundamental financial, operational and commercial performance of their invested portfolio companies. As a result, operating improvement must translate into increased enterprise value, in order to yield higher investment returns. Hence the new partnership triad between general partners, limited partners and operating partners.