What does it mean for a Private Equity firm to 'value BD'?
April 24, 2024
April 24, 2024
A recurring theme in my conversations with existing PE BD professionals and those considering the transition is that they want to join a PE firm that “values BD”.
I've heard it enough, but have always struggled to pinpoint what it actually means. I’ve certainly witnessed how the perception of BD professionals can vary across firms. At worst, folks at some firms feel like "second class citizens" and more generously, as less integral than their deal team counterparts. Surprisingly, this comes up a lot.
Or perhaps it's not so surprising. Given that Private Equity Business Development has only recently been acknowledged as a distinct and important function within the industry, it's understandable that not all firms have a dedicated BD professional yet. It’s natural to expect variance in approach (to hiring, strategy, compensation, etc.) as the function grows within the industry. Someone recently laid it out to me this way: as PE as an industry is maturing, one of the effects of this is the expansion of functions outside of deal teams. Many firms that were formerly small groups of investment professionals have been building teams within IR, Portfolio Ops, and of course, BD.
Hopefully it goes without saying, but in case it doesn’t, when I say Business Development, I’m referring to deal sourcing / origination.
So with this perspective in mind, what does it mean for a firm to value BD? Before we dig in, let’s provide a bit of the lay of the land on the function.
*These figures are not scientific, this is something we track, but inevitably have missed a few firms / BD professionals.
The possible answers to the recent poll I posted on this topic were: compensation, seniority, influence, or ‘something else’. I’ll expand on what I mean by these below, all influenced by the hundreds of conversations I’ve had with (mostly) people in the seat and those looking to break in.
Naturally this is a big factor. Paying a BD professional at market (See the TD Newland BD Comp Report for what’s market) or at least close to their deal team counterparts is undoubtedly a clear way to demonstrate your firm values the function. As with any position, you’re more likely to draw the best talent this way. This includes cash compensation and carry allocations as well.
See the chart below for more info on carry allocations for BD professionals.
The structure of compensation packages is critical too. According to our 2023 BD Compensation Survey, 62% of participants reported receiving only a discretionary bonus, reflecting a trend towards more predictable, investment-professional-like bonuses. Considering BD's limited control over deal closures, they may find certainty in compensation appealing. However, success-based components still have merit, aligning incentives and rewarding 'hunters' for finding opportunities. Firm strategy, team size, and sourcing approach dictate the ideal structure. A blend of discretionary and incentive bonuses, with targets and accelerators for key metrics, might offer the best of both worlds.
The seniority of the BD professional hire is also a good indication of value placed on the role. The titles of MD, Partner, or Head of BD not only enhance the BD professional's standing in the market but also signal their significant influence within their firm. The same goes for background - tenured bankers, former deal professionals are again, clear signals to the market that it’s a person with influence within the firm.
"By 'seat at the table,' I mean if a BD professional’s input is taken seriously—whether that’s contributing to investment committee decisions or having their insights influence the firm's strategy. Conversations with numerous bankers have highlighted a consensus: the most effective BD professionals are the ones who can be trusted because they wield significant influence at their firm. That influence certainly helps the BD professional navigate relationships with intermediaries.
Other indicators of a firm's value on BD might include a clear path to partnership, administrative support, the presence of additional BD team members, and a commitment to equipping the team with the necessary research and outreach tools.
Clearly, valuing BD encompasses more than one factor. Though the results of my recent LinkedIn poll suggest compensation is paramount, my conversations indicate a broader set of considerations. It’s apparent that truly valuing BD extends beyond the paycheck; it’s about integrating BD professionals into the fabric of the firm, respecting their expertise, and providing them with a platform to influence outcomes. This approach helps to create a culture where every member, regardless of their role, feels integral to the firm’s success. Ultimately, firms that accomplish this are likely to not only attract but also retain the industry’s top BD talent.
My aim, as always with the content I share here, is to peel back some of the layers of BD roles in PE, providing insights for those considering building a BD team or pursuing a role in this space.
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