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CEOs, Private Equity

When the Best Capital Partner Is the One Who Leaves You Alone

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Implementing or improving reporting processes, introducing new accounting systems, helping with recruiting and hiring, restructuring management — all these are common value-adds of an experienced private equity firm.

The operating expertise of a hands-on partner can be just as important as capital in helping a business reach its next stage of growth, especially for first-time founders. But a highly involved partner isn’t the right choice for every company at every stage of growth.

image002 (1)In some cases, the best investor might be the one who’s willing to — more or less — leave you and your team alone. This can be particularly true for businesses that have experienced operators at the helm and are looking for minority investments. It was certainly the case for J. Jeffrey Fox during his time as CEO of Source4Teachers, which provides highly skilled substitute teaching personnel to school districts.

Jeff, who had spent more than 20 years as CFO of large publicly traded companies, bought a majority interest in the business in 2009. “The founder needed someone to help the business both financially and operationally and get the business on the right path,” Jeff says.

In 2010, when Jeff’s business partner decided to sell a small portion of his investment in the company in order to raise cash for personal needs, Jeff started looking for a minority investor. Jeff wanted to make sure his partner got the best price possible, but also that the shares got placed in the right hands.

[pull_right]“I didn’t want to hire a boss over me. I wanted to hire a partner.”[/pull_right]“I didn’t want to hire a boss over me,” says Jeff. “I wanted to hire a partner, someone who was able to adapt to the information that I use to run the business, and understand why it’s important, as opposed to me having to create a separate reporting system and package for the investor group.” In particular, he wanted to avoid bringing someone on board who would micromanage his processes — the last thing Jeff wanted was formal board meetings, advisory councils, or unnecessary reporting requirements.

Jeff had a clear vision of his growth strategy moving forward. “It was at a very high level. You could have put it on a napkin: Here’s what we’re going to do, here’s how, here’s why.” His goal was to find someone who could buy into that strategy and help him execute on it, without slowing things down or creating extra work.

Jeff had a previous relationship with Andrew Sachs, managing member of private equity firm Sachs Capital, and suspected he would be a good partner. The financial fit was there: the firm had patient capital, and was willing to invest a minority share in a small company (Source4Teachers was bringing in around $10 million in annual revenue at that time).

More importantly, Jeff knew from watching Andrew’s past investments that he wouldn’t come in and try to shake things up just for the sake of making his influence known.

[pull_right]Jeff knew that Andrew wouldn’t come in and try to shake things up just for the sake of making his influence known.[/pull_right]

“Andrew is totally different from your typical private equity guy,” Jeff says. “He was offering money, but he didn’t come with an attitude. It wasn’t, ‘Hey, we know more because we’re Ivy League MBAs and you’re not.’ Andrew looks at businesses and truly invests in the people who are running it. He wants to understand them and what their needs are.”

Source4Teachers and Sachs Capital closed the deal, and over the next few years, Andrew’s approach proved a great fit for Jeff’s leadership style. “He wasn’t looking to make work, or perpetually kibitzing in the business to second-guess what’s going on,” says Jeff. “His issues were very business-oriented and practical in nature. He recognized that we weren’t a big company like Johnson & Johnson in terms of being able to crank out reports for somebody to look at every two minutes.”

“Our strategy in every investment is to let management run the company,” says Andrew. It’s an approach which requires an inherent confidence in the company and its leaders. Meanwhile, Sachs focuses on “assisting management with high level strategic and capital decisions,” like balance sheet strength, growth trajectory, and exit timing.

Andrew’s supportive but hands-off style ultimately gave Jeff the freedom he needed to bring Source4Teachers to the next level. By 2015, the company had expanded from one to six states — paving the way for it to become a national firm — and had grown revenue by well over 10x. At that point, Jeff decided to sell the company, creating liquidity for both himself, his partner, and Sachs Capital.

Ultimately, business success is driven by two things, “people and the right business model,” says Andrew. “Source4Teachers had the correct people and a business model that offered tremendous growth.”

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