by Brian DeChesare Comments (84)

From Cold Call to Closed Deal: How a Private Equity Investment Comes Together, Part 1 – The Idea

From Cold Call to Closed Deal: How a Private Equity Investment Comes Together, Part 1 - The Idea

Your office door creaks open, and you close your YouTube window in a knee-jerk response.

David – the Partner you work with most closely – walks in and glances from side to side, pretending not to notice you at first.

This must be something important if he hasn’t started talking yet.

You tap away on your keyboard while staring at the screen, pretending that you’re writing that important email that you should have sent out yesterday.

Finally, he opens his mouth.

“We need to talk about your performance.”

Performance Review?

Your performance? It’s his performance that he should be worried about – 3 years without a solid exit, and nothing promising on the horizon, either.

“We need you to do more sourcing here – I saw that you only called 10 companies last week, which is just not enough to support good deal flow here.”

Ah, the cold call logbooks. People only review them when deal flow slows down, and now it was your turn to take the blame for his poor performance.

“The bottom-line,” he said, “is that you need to call more companies. Get out there and generate more investment ideas. And start tomorrow.”

Cold Calling

You started working in private equity a year ago, and you still haven’t closed a single deal – disappointing, but not uncommon.

And with this upcoming cold call routine, your chances aren’t getting any higher.

But orders are orders, and at a small fund like this, you’re responsible for everything from calling CEOs to doing deals.

So you put your nose to the grindstone and comb through lists of companies your firm has spoken with before – warms leads are more promising than the legions of firms that have never heard of you.

But the responses you get aren’t too encouraging:

  • “Not right now… we’re 100% focused on organic growth.”
  • “Why would I want your firm to invest in my company? PE adds no value.”
  • “If you call me again, I’m going to get a restraining order.”

A few weeks later, David once again waltzes into your office unannounced, and catches you in the middle of a call.

While you’re on the phone asking for an update on the company’s performance, he shuffles around the papers on your desk, sits down in front of you, taps his foot repeatedly, and leans over on your desk.

Your call finishes and he smirks at you, gently claps his hands for a few seconds, and then jumps up and leaves without saying anything.

Banker to the Rescue?

After a month of calling companies both known and unknown with no results to speak of, you’re getting desperate.

Normally you avoid investment bankers for fear of becoming Patrick Bateman’s next victim, but you’re out of ideas – so you start calling your friends on the sell-side to see if they can point you to the next Google.

“Yeah, so I got stuck with that $1500 bill from too many bottles – and then I got cock-blocked by the blonde fashion designer chick’s friend before I figured out that the number she gave me was fake. Should have called her before I left, but I was soooo wasted…”

Ah, bankers. Pathetic creatures – but then if you had to spend all day cranking out pitch books and fixing punctuation, $1500 bottle service and gold-digger chicks would be your only salvation.

“Sounds like a fun night, wish I could have been there,” you say while rolling your eyes and gazing out the window, “But have you heard of any good companies looking to sell or raise capital lately?”

The banker pauses for 10 seconds before responding.

“There was this one small one out in the middle of nowhere – below the bar for us but I heard they had like 50% EBITDA margins and were growing fast. I forget the name right now, but I can ask around and get back to you on that.”

You’ve either saved yourself, or been duped by a banker still recovering from his hangover.

Is This a Real Company?

Your first 10 cold emails and 5 cold calls get ignored, but you’re used to that by now.

On your 6th call, you finally get through and speak with Nancy, the CEO of Ion X Solutions, who thinks she’s now a movie star because she’s chatting with one of those legendary “private equity firms.”

You find out the following from a 30-minute conversation with her:

  • It’s a Founder-owned and operated business.
  • It has revenue of around $20 million with EBITDA margins of 50% and revenue growth of 15%.
  • They have those margins because it’s a software business in a niche market – high-end design software for engineering firms. They don’t have to spend much on research & development because the product is mature and the competition is minimal.
  • She’s thought about selling before, but has never found the “right fit” with buyers.

It’s on the small side – your firm only invests in businesses with at least $10 million in revenue, but they prefer to see more like $50 million.

And the market will count against you, since your firm has never invested in a software company, let alone one as niche as Ion X.

But hey, at least now you might be able to stop David from walking into your office unannounced next time.

Got Fundraising?

As you’re cold calling like a pro, the Partners at your firm have been scurrying around to raise their next fund.

The $750 million fund they raised 5 years ago is almost exhausted, and they’re working up a list of Limited Partners – both new and existing – to approach for investment in this new fund.

Then there’s the business of pitching all these investors, deciding what type of message they want to convey, and figuring out who will help with the fundraising.

At the next Monday Morning Partners’ Meeting, they spend the entire time talking about this fundraising and don’t even ask the juniors for updates on deals.

But then John, the Founding Partner of the firm, steps in at the end with a request.

“I appreciate everyone’s help with our fundraising. But we also need to focus on our existing fund and exit our investments. Let’s get an update on all current deals and possible exits there.”

All the Partners chime in, with news ranging from, “No updates for now” to “We just got an LOI (Letter of Intent) from an acquirer.”

You’re sitting at the corner of the table, close to the door so you can leave in a hurry if need be – you planned your escape route well in advance.

Normally junior associates don’t say anything at these meetings, but this time you’re not so lucky – as the Partners finish, John turns to you and says, “We’d like to get you more involved in these meetings – anything promising you’ve found lately?”

Everyone’s head turns toward you in unison, and you freeze, unsure of what to say. David is sitting to your right and starts tapping his pen on the table while revealing a faint smirk on his face.

After clearing your throat, you speak up.

“Nothing definitive yet, but I’m working a few interesting leads right now.”

Pitch Anything

As you sprint outside after the meeting, David approaches you once again.

“So, do you have anything real?” he says, “Or was that just for show?”

Announcing your discovery to the Partners without knowing more would have been suicide, but you need to say something now or you’ll never get him off your back.

“I have something – it’s a software company doing around $20 million in revenue, growing at 15%, with 50% EBITDA margins,” you respond.

“And you didn’t think it was a good idea to mention that?” he retorts.

“The stats sound good, but there are a bunch of other problems – we’ve never done a software investment, it’s very owner-dependent since the CEO founded the company 10 years ago and still runs everything, and there may not even be a buyer 5 years from now,” you explain.

He squints at you, looks up at the ceiling, taps his fingers on his cheek, and then looks back at you before responding.

“I’d have to look at it in detail, but it doesn’t sound like a good one to me. Probably a good call to leave it out. Good work finding it though.”

You trod back to your office and start calling more bankers, poring through research, and Googling random markets.

It’s time for even more cold calling.

Control Freak?

A few days later, Nancy, the CEO, calls back and tells you she’s had a change of heart as well.

“I’m no longer interested in selling – I don’t think the managers here will come along if someone besides me owns the company. They’ve worked with me for years and I don’t think they’d like a new owner,” she explains.

A good call to leave it out, indeed.

“I’m also not sure about private equity – I heard they buy companies just to fire everyone so they can earn more profit,” she continues.

Yes, another CEO whose entire knowledge of the finance industry is based on Wall Street.

“No worries,” you say while swiveling around in circles on your Aeron chair, “Thanks for getting back to me. And let me know if anything changes in the future.”

If you were in a better mood, you might have fought back and pointed out how your firm could actually help this company – but the Partners would never get behind this one anyway.

Back to the Grind

Over the next year, the Partners shift their focus and move into fundraising mode, pulling you off a few other deals you were working on and getting you to help with all their marketing materials.

Just one of the joys of working at a firm with only 10 people and only 1 other associate.

Most of the new Limited Partners they’re attracting have no interest in technology, so your deal is looking even less likely now.

And you’ve gotten busy with the fundraising, reviewing portfolio companies’ numbers, and looking at possible acquisitions for them.

Meanwhile, David is getting his own “performance review” and learns from the more senior Partners there that he needs to get a deal done or get an exit in the next year or he’s out.

He walks down the hallway and once again strolls into your office unannounced, sits down, and leans over on your desk.

“So,” he says, “How are those calls coming?”

Your Offer, If You Choose to Accept It

Left with no choice, you now have to juggle even more cold calls on top of everything you’re already doing – fundraising, market research, and reviewing quarterly results from all your firm’s portfolio companies.

You pick up the phone and think about calling your banker contacts again, but then realize that you’ll be forced to listen to more tales of models and bottles in the process.

So you put the phone down and get back to combing through lists of companies and seeing which ones you haven’t called yet.

Just as you do that, the phone rings and you hear Nancy’s voice once again.

“Great news,” she says, “I changed my mind and now I want to sell.”

“I see,” you say, wondering what the real story was, “So what changed your mind?”

“Well,” she replies, “One of my contacts is starting his own business next year and he’s offered me the CEO role there. And I’ve been running this company long enough, so I’m looking to move on and do something different.”

“But I need to start quickly,” she says, “So I’m willing to sell now, at a reduced price, if you let me leave the company within 12 months.”

The Rest of the Series:

Hey, if a trilogy worked for Lord of the Rings it will work here:

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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  1. Avatar
    Justin Nguyen

    This is hilarious. Great post man

  2. Avatar

    I loved this series more than you could imagine. The dialogue was really good, reminded me a bit of shows like House of Lies. It’s great you occasionally do creative things like this once in a while, although I do really appreciate all the interview/resume/networking articles on this site.

  3. Isn’t this a copy of the series cost of capital? Exactly the same situations?

    1. The series was actually based on this short story. This one came first.

  4. Hey that totally sounds like my life! I am glad I am not the one out there alone listening to my boss give me “feedbacks” while I keep making those cold calls.

  5. “… help with all their marketing materials.”

    What type of marketing materials would you be required to put together at a PE shop? Who would you be pitching to? LPs?

    1. Avatar
      M&I - Nicole

      Yes you’d be pitching to LPs

      Marketing materials like private placement memorandum, due diligence package and presentations for investors

  6. Man.. this article is so true.. being a PE guy at lower level i face the same….

  7. Aaarrgh!! After reading a ton of posts on this site, the last thing I expected here was a post WITHOUT an ending :(

    lol Awesome post though….You can make this a fiction novel or something :)

  8. Hi Brian (and crew),

    I just wanted your honest opinion on a matter:

    I found this broker/dealer, and it’s offering an investment banking internship this summer, which is unpaid, to undergrads.

    I was just curious as to what your opinion is about this firm; would it offer a legitimate investment banking internship that i can leverage to place myself in analyst interviews next year, would it be a good idea to go with it, and basically what you think of the firm as a whole.

    I put the link of the website in the “Website” tab above in the “Share Your Thoughts” field. Please take a look and let me know.

    It would be greatly appreciated…I really need an honest opinion before I do anything.

    Thank you very much, Brian (and crew).

    1. Hard to tell from just the site. Not a big name but much better than nothing / much better than something outside of finance. So if this is your best option, I would take it.

      1. Thanks for your prompt response.

        I have one more question. I actually ended up taking an intern position as a broker trainee at a very small investment bank in midtown NY. I put the link of the actual firm in the “Website” tab above. Can you tell me if I’d be able to leverage my experience from this particular internship as a broker trainee to position myself in FT analyst recruiting? I’ve had mixed opinions, but I’d appreciate if you’d give me your two cents. I’m actually assisting one of the best stock brokers there, supposedly he opens up more accounts than anyone in the firm.

        I really tried my hardest to secure an IBD internship this summer, but nothing really worked out. I did get lots of contacts within the IB industry, and a few people actually told me to get in touch when FT analyst recruiting season comes along. I’m also trying to have lunch with a few people that I’ve cold called throughout my internship search.

        But yeah, that’s pretty much it. I’m still determined to break in no matter what. I got one more year in undergrad (unknown), and I’m doing my best.

        Thanks again, Brian (and crew).



        Thanks again for your advice in advanced.

        1. Haven’t head of them but seems fairly legitimate so I think it will still help with FT recruiting

  9. Someone above mentioned a “sourcing” PE firm…what exactly does that mean compared to other PE firms, and when job-searching, how can you tell which are like that?

    Constant cold-calling for investment ideas does not sound like a lot of fun (I understand that there is always a certain amount, but still..).

    1. “Sourcing” means you spend most of your time cold-calling rather than doing deals. All you can do to avoid it is ask around, talk to headhunters, ask the people working there directly what they do… certain firms also have a reputation for that, which you’ll find out about once you start working in banking.

  10. i was looking at some alumni and i found an interesting division within a BB- ‘investment banking strategy’. What is this?

    1. Instead of paying McKinsey a fortune to do work on your bank’s strategy you just poach them and put them in the ‘Investment Banking Strategy’ team. Cheaper for the firm, McKinsey guys think they become investment bankers (but really they are just doing consluting with more politics/admin) and everyone’s happy. That’s pretty much it.

      PS. I just realised I made a typo with ‘consulting’ above but consluting is actually pretty funny/accurate.

  11. Wow, pretty realistic. There was quite an emphasis on cold calling although I don’t think that’s 100% accurate..the Directors usually run the sourcing and the Junior Associates work on the modelling / investment committee papers. Probably varies from fund to fund though. Nice post regardless

    1. The person in the story here did other tasks, it’s just that they were not featured in the story.

      And at most small and mid-sized funds, the juniors are indeed responsible for sourcing in a lot of cases, in addition to the deal work and documents.

      You don’t see that at mega-funds, but otherwise cold calling is not uncommon in PE.

  12. Love the site.

    I’m about to enter my senior year and plan on using this summer to try and figure out what exactly I want to do with my life. I go to a non-target co-op school and have completed 6 months of work experience at Putnam Investments (back office), BCG (consulting), Piper Jaffray (public finance intern) but don’t know what I want to do. I’ve said no to public banking (jv team), consulting (too much travel) and was hoping you could share some advice on best groups for overall exposure. I’ve been leaning towards entering the 2/3 years corp banking, go get my MBA and move my way into VC. I think that suits my skill set and search for more of a life balance. I have no problem working 100+ hours but when I’m 32 I’d rather get home by 8/9. I also think a deal oriented occupation suits my needs more than a market based position but I’m really not sure. I guess, in conclusion, my questions are as follows:
    a) If I decide to go into banking, what is the best group for overall exposure – to aid in my future career search?
    I realize most of the time you don’t have a say in this but, just curious.
    b) Are the hours that much different in VC vs. PE?
    c) Are there major VC firms on the east coast?

    I also just want to thank you for all the time and effort you put into this business. I realize this is a profit seeking enterprise but you truly succeeded in finding a consumer need and developing a product matching what your target audience thinks they want to know.

    Looking forward to hearing back from you.

    1. I think you’re planning out too far ahead:

      Most people would say that M&A and solid industry groups are the best places to go because you learn both technical and qualitative skills, whereas something like capital markets is much more specialized (see the industry vs. product group article)

      For your questions on VC, see this:

      There are a few major VC firms on the east coast but the west coast of the US is where 95% of them are.

  13. Unrelated-

    Idea for BIWS- I think videos for Series 7/63/79 etc exam content would be a great addition. The current study manuals are dry, and I haven’t encountered a competent online service.

    1. I’ve thought about that before but I get bored even teaching that stuff + don’t even know what the 79 covers. I also think most people just cram for all of those during training, so there isn’t a huge need vs. modeling/interview prep, which people learn at all times.

      I will keep your suggestion in mind, but in the near-term more modeling additions and revisions of existing lessons are more likely.

  14. Wow Brian!!

    I just loved it…. I am getting addicted to M & I. Infact, over the past few weeks, it has made me fall in love with Investment Banking. I am a 20 year old guy in India, who is majoring in Investment and Finance from the University of Delhi.

    And.. this post was so damn superawesome!!!

    1. Cool glad to hear it

  15. This is Nice…Informative yet entertaining….

    Not as unrealistic as “Damn it feels good to be a banker” but also not as dry and boring as “Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions.”

    You should start your novel series, maybe called “The Banker.”

    Since left the “Financial Fiction” genre (Yes, I know that’s a really small industry), you would have a near monopoly. I’d buy your books.

    Keep it up, can’t wait for parts 2 + 3

    1. Yeah it’s a very small market so not terribly appealing… if I wanted to do fiction it would have to be something much broader. Even then it would still not be as lucrative as modeling training programs…

  16. I’m either really lame, in a “I love finance SO much!” kind of way, or this is a really good story. It has good tension and suspense, a Gollum character, and didn’t take 3 hours to get through, 2 hours of which involved scenes of Elijah Wood getting LSD flashbacks. Thanks Brian!

    1. Haha I actually really like Lord of the Rings, though Game of Thrones is even better. You should check that out for a more realistic take on the genre (very little magic, mostly normal people, more about back-stabbing / political intrigue).

  17. Great stuff!

    On an unrelated note, any chance of a write-up on equity/FI sales & trading with particular emphasis on the sales role? The articles thus far mainly cover the trading side of things.

    1. If there’s a volunteer, yes. The trading side of fixed income has already been covered.

  18. Yeah, I wouldn’t recommend a sourcing PE firm for anyone unless they really like being glorified telemarketers…just my $0.02.

    1. Right, except sourcing is a component of the job even at mid-size firms. At higher levels it’s better than cold calling, but it’s something everyone has to deal with – if you’re not finding new investment ideas, they have little use for you.

      1. Don’t most co’s already have a banker (mid-mkt, even $10mm revenue businesses…), so wouldn’t today’s sourcing really just be sourcing directly from bankers(it seems every deal would already have a banker rep’ing it…?)

        appreciate any input here M&I

        1. Avatar
          M&I - Nicole

          If you’re talking about PE deals, no. There are “middlemen” (at least in Asia) and you can source from them.

          1. ur saying btq bankers DON’T call small co’s all day to be their advisor? I’m under the impression the mkt’s become extremely efficient…what’s an example (American) ‘middleman’ firm? Thx so much m&i…

  19. Great post, Brian!

    On a side note – this site has shifted quite a bit in the PE direction lately. Any plans to release a “Break Into Private Equity” pack?

    1. I’ve thought about it but there are already a lot of articles on PE recruiting, interviews, etc. as well as multiple LBO models and a PE case study on BIWS. So I don’t really have much more to say about it.

  20. I didn’t know there are other former investment banker than Lawrence MacDonald who is also a good writer!
    I love your website man, I had fun with less guilt than watching serials. Haha. Keep writing!

    1. Hah I still think dramas are more fun. Check out The Wire, Breaking Bad, Game of Thrones, and Luther (UK series).

  21. Great read, I should be studying and doing hw but this was really entertaining. Can’t wait for parts 2 and 3

    1. Yup they will be even better

  22. wow, this was my networking question with PE guys since most kids spend too much time dreaming about models and bottles to actually care about what PE really is like. It worked out pretty well since I don’t think many people know enough about PE investing process to even know what to ask about it!

    hopefully this doesn’t ruin my plan! Just kidding, I still learned from reading this even though I’ve gotten it answered dozens of times.

    1. Yeah most people are silly… everyone is in search of a magic bullet solution

  23. Brian, great story telling there. I am a fan!

    I was trying to get in touch regarding a career related question but it seems like theres no direct way to post you a note. So I am hoping this gets to you. My bank has laid off a few people in my group and probably the axe is on me. I really need to speak with someone experienced like yourself to help me decide what my move should be. If there is anyway, I can get in touch with you or anyone you know who can advise. I dont mind if this will be a paid service.

    Please let me know. I will check this page for your reply.
    Thanks Brian

    1. Hey I don’t do 1-on-1 consulting but you could ask around on message boards or leave something more detailed here. See also:

      1. Thanks for your prompt reply Brian. That was very helpful indeed.

        I saw a reader posting on the above link that matches my situation. I have left a reply there and raised a question to the forum and yourself. Please check below link (my reply to Kurt’s comments at the very bottom)

        I am concerned about the U5 form language that my firm can use and its implications.

        I would really appreciate if you can take a look at the above link.

        Thanks again.

        1. Yes I would not worry about that, most people don’t even remember those forms exist. And employers will never say anything negative on background checks etc. as it would just lead to lawsuits.

      2. Hey, Thanks for your prompt reply.

        I checked the second link you posted in your reply above and found a posting there at the very bottom by a reader named “Kurt”. My case is exactly same as his. I posted a comment on his posting and raised questions on the FINRA U5 form that your new employer would check.
        Link below –

        My concern is that if the reason for termination is mentioned as “Performance related” that would have drastic implications on finding employment. In my case, it was more of politics and personal reasons but how do I defend that.

        Sorry for the long write up. Thanks a tonne!

        1. As I mentioned a few other spots here now, I would not worry about that as it’s just not going to come up in an interview. Even if they do a background check and ask the firm all they would do is confirm the dates that you worked there.

  24. the next movie script is on the way folks — after ‘the wall street’ – its the time for ‘the private street’ — :P

    1. Hah not sure about that one but I am working on a somewhat related idea for a script

  25. Great post, they storytelling is actually really good.

    When is part 2 and 3 out?

    1. A few weeks for each one as I want to run a few other topics in between

  26. Avatar
    Ryan Nash

    Great post. Love to here about PE and compare it to IB.

    Keep them coming :)

    1. Yup keep in mind it is fiction so it’s not exactly the same as real life, though this was inspired by real events

      1. I used to work at a large European PE fund and this is EXACTLY what happened to most associates over the past 2-3 years. Couldn’t have written it better myself. Looking forward to Part 2 – and hoping it will include something on the inverse correlation between dealflow and doing something really stupid with booze/boss’s PA at the annual Christmas party…

        1. Haha that’s a good one to add in… I considered adding more personal stories / romance but felt it would make this off-topic. Maybe next time.

  27. Love it so far, very Stephen Frey-ish. Write a book to keep yourself occupied on your private island in the Seychelles.

    1. Hah no private island yet…

  28. Don’t leave us hangin Brian!!!

    1. Had to do that, otherwise you wouldn’t be watching for the next one…

  29. Love it!

    1. Awesome glad to hear it

  30. Avatar
    Joel Beckmen

    Terrific! Nice cliffhanger.
    Eager to read the next episode.

    1. The next one will be even better as the conflict heightens…

  31. Avatar

    The next John Grisham? =]

    1. Avatar
      Joel Beckmen

      The same feeling I have.

    2. Haha think I have a ways to go there… but I am getting more interested in fiction lately

  32. This was a very entertaining and interesting read! I can’t wait until Part 2! You never seem to run out of great ideas for articles & posts. I love this site.

    1. Thanks, glad to hear it

  33. Love it – this is a fantastic post. Please keep doing more of these.

    1. Thanks! A few more are coming up.

  34. Private Equity sounds incredibly…dull and boring.

    Great post btw! Now atleast I know what I don’t want to do.

    1. Keep in mind that this is at a small fund… at larger places you might have more deal work than cold calling. But yes, even deal work gets repetitive after awhile because most of the time you’re working at a very high level.

  35. Avatar

    Great insight to the ‘Promise Land’!

    1. Oh just wait for parts 2 and 3, where the real fun begins.

  36. Good stuff. PE sounds intense! No job security if you don’t close deals, lol.

    1. Yeah in real life it is probably more boring than dramatic. But the pressure to earn is high.

  37. Avatar

    Great storytelling.

  38. Avatar

    Awesome post!

    1. Thanks! Wasn’t sure of the reaction this one would get…

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