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Thought. Leadership.

Innovations, investments, strategies and opportunities introduced at the speed of business.

David Toll

Legends of Private Equity: Biggest Hits and Misses

Ever wonder what it feels like to pass on backing a startup that goes on to a market cap in excess of $20 billion? One of our legends did, after taking a look at the business plan for Starbucks. Ever hear of Edgcomb Corporation? Another one of our legends wishes he never had. After taking the Philadelphia steel services company private in 1989 for about $300 million, his debut fund ended up losing 100 percent of its equity investment. Of course, they wouldn’t be legends if their successes didn’t vastly outweigh their mistakes.

Legends: Steven B. Klinsky, David Morgenthaler, Alan Patricof, Wilbur Ross, Stephen Schwarzman,

Carl Thoma

Managing partner, Thoma Bravo, LLC

Business school: Stanford 1973

How broke into private equity: “Spring of 1974 by joining First Chicago National Bank, a Chicago holding private equity subsidiary,” Thoma wrote in response to questions from Buyouts. “My first job consisted of looking for investment opportunities, doing due diligence and working with portfolio companies–the same things I am doing today.”

Why a legend: Thoma began his career at First Chicago Equity Group before joining the late Stanley Golder in 1980 to create Chicago buyout shop Golder Thoma & Co. In 1984, with the addition of Bryan Cressey, the firm becameGolder Thoma & Cressey, and eventually, with the elevation of Bruce Raunerto partner, Golder Thoma Cressey Rauner. In 1998, the partners split, with Thoma and Cressey starting Thoma Cressey Equity Partners, and Golder and Rauner starting GTCR Golder Rauner. Since then, Cressey has moved on to start the health-care focused shop Cressey & Co., while Thoma and PartnerOrlando Bravo raised $822 million for their own fund for investing in financial services, education, consumer and distribution.

Words to live by: 1) “Time is the enemy,” wrote Thoma. “The longer an investment is held, the more difficult it is to achieve superior returns. Be decisive, act quickly and measure results.” 2) “Develop industry-specific expertise. Contacts, sector-specific knowledge, and a sense of industry history are keys to achieving timely success. Hire CEOs who know their industries.” 3) “Act before the deal closes. Do enough upfront research and negotiation to have performance and ‘best practices’ metrics, optimal organizational structure and other targets set in place. This makes it possible to grow the company from day one.” 4) “Worry, worry, worry. The time spent nervously pondering all possible negative surprises–and how to respond to them–is time well spent. Think ahead, plan ahead, and act on your ‘gut’ so as to prevent calamity.”

Best investment: “Paging Network, which we built into the world’s largest paging company,” wrote Thoma, “and Global Imaging, where we started with one acquisition and 10 years later had completed over 50 acquisitions in the office copier business and then sold to Xerox for over $1 billion.”

Biggest missed opportunity: “Being too conservative in getting out of many companies earlier than I should have because exit multiples continued to go up.”

Biggest investment mistake: “Nerve Wire,” Thoma wrote. “We thought we would out smart the dot-com bubble by focusing on the people that provided infrastructures or the merchants that sold goods to the gold miners. Unfortunately when the dot-com melted down, the meltdown was so severe that even the merchants and infrastructure providers melted down as well.”

Favorite business book: “Any of Jim Collins‘s books, which cause you to step back and look at management in the big picture.”

Social media: “Occasionally I use Facebook for personal and family. Not business.”

Retirement plans: “Why retire when you’re having fun? I currently have no plans to retire.”