Podcast Summary

Episode Overview

Podcast: The Path to Exit
Episode: 29 | How PE Fund & Partner Dynamics Impact Their Bids for Your Business
Date: June 17, 2025
Host: Mike Lyon (Vista Point Advisors)
Guest: Mike Greco (Vista Point Advisors)

This episode delves into how the internal dynamics of private equity (PE) funds and partners can significantly influence the quality, structure, and risk of their bids when acquiring software and technology companies. Through candid discussion, Mike Lyon and Mike Greco reveal what founders should know about PE fund cycles, partner motivations, and the less-obvious pitfalls or opportunities that arise during M&A negotiations with different types of PE buyers.

Key Discussion Points and Insights

1. Comparing New vs. Established Funds

[01:13 - 03:25]

• New Funds:
  • Tend to perform more exhaustive diligence since their first deal will define the fund's track record.
  • Can be aggressive in bidding if they find a perfect fit, but the scrutiny is intense.
  • Diligence costs are high—sometimes $500K to over $1M—which increases their motivation to close as the process progresses.
  • “If those things grade out, it can be a party that gets very aggressive. The question becomes, are you going to grade out perfectly in many of those cases?” (Mike Greco, 02:11)
• Established (Fund 5+) Funds:
  • Less likely to overpay or push a deal through if issues arise late.
  • Have a track record and less pressure to make their mark with every new deal.

2. The Impact of Diligence and Deal Timing With New Funds

[03:25 - 05:20]

• Early in Process:
  • Lower probability of close due to high standards.
• Late in Process:
  • Once significant monies has been spent on diligence, the likelihood of closing rises, sometimes causing funds to overlook minor late-arising issues.
  • Notable Quote:
    “We have seen situations where once they spend the money on diligence…I wouldn’t say they do irrational things, but you could tell that was a reason why they were able to just get comfortable over some of those issues and close over it.”
    (Mike Lyon, 03:44)

3. Smaller Funds, Bid Patterns, and Price Discovery

[05:20 - 06:42]

• When smaller funds increase their check size or move beyond core expertise, they might start bidding on every deal—sometimes for market research, not necessarily to win.
• This “price discovery” approach creates noise and problems for sellers trying to discern serious buyers.
• Sellers and their advisors must probe for true conviction and investment committee buy-in.
• Notable Quote:
  “They can get really aggressive, but the challenge is how real is that? How vetted is that at the IC, the investment committee? … They do have a propensity to almost bid on everything they come across.”
  (Mike Greco, 06:09)

4. Fund Life Cycle: Early vs. Late Stage Bidding

[06:42 - 09:34]

• Early Fund Life:
  • Focused on acquiring 'platform' deals to anchor their thesis, willing to pay more, have longer to realize returns, and plenty of capital (“dry powder”).
• Late Fund Life:
  • More conservative, typically looking for smaller “tuck-in” purchases at lower multiples.
  • Deals may require creative structures to justify timelines.
  • Founders should research public records on fundraise dates, but actual deployment timelines can be obscure.
• Hold Time of Portfolio Companies:
  • If a PE firm’s portfolio company is nearing exit, they’ll be reluctant to pay full price for a new acquisition due to limited time to generate return before resale.
  • "If they're late in hold time with a portco, they're a bad buyer...and as soon as they sell that port co to another private equity firm, which is now early in their hold time, they could become a really good buyer." (Mike Lyon, 09:34)

5. The “Starved Partner” Syndrome

[11:07 - 13:14]

• Partners who haven’t done a deal in a while become highly motivated—sometimes over-aggressive—in their attempts to win deals.
• However, the investment committee (“IC”) often isn’t as motivated as the individual partner, especially in larger or more hierarchical funds.
• “It’s difficult for founders to appreciate this partner really wants to do my deal. But the IC...might not be as starved.” (Mike Greco, 12:30)
• Bigger Funds: The larger the fund, the less individual partners can influence the IC, heightening risk of deal collapse late in the process.

6. Investment Committee (IC) & Internal Fund Authority

[13:14 - 15:13]

• With smaller funds, decision-making can be streamlined (sometimes the founder IS the IC).
  Quote: “There is no investment committee risk.” (Mike Lyon, 13:55)
• Bigger funds: Much effort goes into assessing if partners have actual influence over the IC—if not, deals are prone to falling through at the last minute due to firmwide policies or risk limits, often outside the partner’s control.
• Many large PE funds pre-approve ‘letters of intent’ (LOIs) with little or no IC sign-off, introducing hidden risks for founders.

7. Risk of New Partners Within Funds

[15:13 - 16:44]

• New partners who’ve switched firms may bring deal energy but often lack credibility or understanding of what can really be approved by the IC.
• In “non-software” funds hiring their first software partner, the IC often has unrealistic expectations about valuations, raising the risk of lowball offers or failed approvals.
• "That is a really risky proposition in our mind and we treat that with a lot of care.” (Mike Lyon, 16:44)

Memorable Quotes & Moments

• “This first deal they’re going to do in their brand new fund is going to depict success longer term and ultimately the fund driver.”
  — Mike Greco, 01:27
• “The earlier you are in the process [with a new fund], the more risk there is. But if you get really late with them, sometimes, they’ll close over some stuff that a more established firm…might just pass on.”
  — Mike Lyon, 03:43
• “They can get really aggressive, but the challenge is how real is that? How much conviction do they have over the thesis as opposed to just taking that bid?”
  — Mike Greco, 06:10
• “If [the PE is] late in hold time with a portco, they’re a bad buyer...So that certainly still matters.”
  — Mike Lyon, 09:34
• “The investment committee isn’t starved...It’s difficult for founders to appreciate this partner really wants to do my deal. But the IC...might not be as starved.”
  — Mike Greco, 12:30
• “Some of these funds will hand out LOIs without the IC really signing off on them or very little sign off. You want to understand what risk you’re taking internally with decision making.”
  — Mike Lyon, 14:39
• “New partner who’s leading software at kind of an older, stodgier fund that has not done software—that is a really risky proposition in our mind and we treat that with a lot of care.”
  — Mike Lyon, 16:44

Important Timestamps

• 01:13 – Nuances between new and established funds; diligence implications
• 03:25 – When diligence spend changes late-stage deal outcomes
• 05:20 – “Price discovery” bidding patterns among smaller or evolving funds
• 06:56 – Fund life cycle and how it changes M&A aggressiveness
• 09:34 – How portco hold time affects whether a PE group is a good acquirer
• 11:07 – “Starved partner” syndrome: positive and negative aspects
• 13:14 – Risk comparison: smaller funds vs. large organizations’ investment committees
• 15:13 – Evaluating new partners and the risk of failed approvals
• 16:44 – Challenges with non-software funds hiring software specialists

Final Takeaways

• The motivations, timelines, structures, and even individual personalities within a PE fund can significantly impact your deal process and closing risk.
• Understanding where a fund and its portfolio companies are in their lifecycle is key to assessing their ability and willingness to pay and close.
• Always assess not just the partner’s alignment but their true influence with the investment committee, especially in large funds.
• When working with new or transitioning partners, be wary of firm-internal politics or experience gaps.
• Much of this knowledge comes from having a well-connected, experienced advisor who understands how these dynamics play out in real time.

For founders considering a sale or capital raise, this episode offers an insider’s checklist to probe past the surface of PE bids and identify real versus transactional interest—helping avoid common pitfalls and maximize deal success.