Operating Partner

Operating Partners are senior-level executives in the business. They have industry expertise and are hired to set up in-house operations teams. While these partners may lack private equity expertise, they are expected to be capable of driving change in the company's portfolio.

Management teams and limited partners highly seek these partners due to their ability to bring additional capabilities, experience, and expertise into the business. This can help the company win deals (both strategic and financial), raise funds, and achieve overall success. The partners focus on creating operational value.

• An operating partner is a seasoned business professional who creates value for companies with their industry expertise. They use their extensive networks to improve the company's overall portfolio value.
• These professionals understand private equity and help the company make quick decisions.
• Their industry experience and network can help the company win deals (both strategic and financial), raise funds, and achieve overall growth by focusing on creating operational value.
• The decision to opt for either an in-house operations team or an operating partner depends on factors such as the investment strategy and size of the fund.

An operating partner is a business professional with a successful track record of creating value for companies. They engage with professional networks to improve the portfolio value of the company. These partners possess credentials from working as top executives in business organizations, consulting, or private equity.

These professionals support portfolio companies' efforts by assisting in strategic planning and operational improvement, as well as monitoring them. They use their analytical skills and industry expertise to help solve the problems faced by portfolio companies. They could work as interim managers, directors, chairpersons, consultants, and operating partners. Their diverse roles benefit businesses by contributing a wider viewpoint developed through their experience managing a number of portfolio companies in various industries.

Their involvement aids management in handling daily tasks. Also, they can spot best practices based on their experience supporting portfolio companies and can use these to add value to operations in various industries. Moreover, these professionals understand private equity; they are cash-focused and work more quickly. Their industry knowledge in supply-market economics, shareholders, and consumers enables rapid decision-making.

These professionals ensure continuity and consistency by bringing their networks in and maintaining long-term relationships with portfolio management. In addition, the operations team helps improve initiatives for financial restructuring and exit strategies. While they help improve the short-term performance of portfolio companies, there is no guarantee in the long-run.

Firms can choose either a dedicated in-house operations team or engage an executive operating partner. The choice may depend on several elements. Key considerations include the fund's investment strategy, size, and specific requirements, such as the level of industrial expertise, general management experience, and seniority.

Additionally, factors such as geographic focus, team size, and level of interaction (with the industry and external advisors) are tailored based on these criteria. Furthermore, the recruitment process should also ensure that the candidate has the necessary soft skills to deal with multiple stakeholders, such as those involved in deals and portfolio management.

Individuals shall ideally have completed their bachelor's degree and extensive industry expertise gained through years of experience. These individuals should have rich industry experience handling an institutionally backed portfolio company. They should be experienced in receiving institutional funding and possess portfolio management skills.

Since every company has different selection criteria, there is no concrete selection method; it depends on their suitability for the roles. The best way to become one is to have the basic education required and work up the corporate ladder by gathering experience. Furthermore, one's candidacy may be strengthened by exhibiting alignment with the company's goals and comprehending the complex nature of an operational partner agreement.

Let us look at these examples for a better understanding of the concept:

Example #1

Suppose ABC Co. wants to go through an acquisition process within a short period. The company wants an individual capable of navigating both the financial and operational efficiency of the process. Since an operating partner would fill the requirements they wanted, they started the hiring process.

Example #2

In the real-world news, the venture capital firm SYN Ventures appointed Tim McKnight, the former SAP global and Fortune 500 chief information security officer, as its operating partner. In his new role, McKnight will help SYN Ventures' portfolio companies build cybersecurity solutions. Furthermore, McKnight will be overseeing SYN Ventures’ and the U.S.'s largest cybersecurity seed fund worth more than $75 million.

The differences between these three roles are listed below:

This has been a guide to what is an Operating Partner. We compare it with managing partner and general partner and explain how to become one & its examples. You may also have a look at the following articles –

• General Partner in Private Equity
• Limited Partners vs General Partners
• Limited Partnership (LP)