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Why Most Private Equity Pitch Decks Miss the Point
Brief
How Bill D’Alessandro and Mills think about investing as limited partners guided the episode’s arc: they organized LP diligence into three buckets (business, structure, sponsor) and walked listeners through practical questions and red flags for each. They began with deal sourcing — giving credit to aggregator sites like CapitalPad, networks such as Long Angle, YPO and EO, and regional angel groups — and emphasized the importance of being “actively looking” so sponsors remember to include you. They both prefer off‑market or management‑buyout opportunities and flag BizBuySell-originated listings as a weaker signal unless the sponsor has a clear operational fit.
They then dove deep on deal structure and what turns a good company into a bad LP investment. Topics included capital stack sizing (equity vs leverage), preferred returns (Bill described typical pref coupons of ~8–11%), waterfalls, and manager economics (2% management fee and 20% carry as the common template). Bill cautioned that prefs can lose protection in operating businesses because payouts may be accrued or paused, whereas Mills puts relatively more weight on prefs for asset‑backed real estate. Taxes and tax distributions were highlighted as practical traps — sponsors must model and pay tax distributions so limited partners aren’t forced out‑of‑pocket for allocated income. On sponsor diligence both hosts emphasized experience fit (career relevance to the target industry), geographic proximity for hands‑on oversight, and true skin in the game: not just a percentage of the round but an amount material to the sponsor’s net worth. They noted common mechanics on smaller SBA deals where the operator typically PGs bank debt — a feature they see as important for operator incentives. Finally, they discussed return expectations: Mills said high‑teens can be acceptable for real estate, while Bill now looks for mid‑20s IRR to compensate for illiquidity and minority/small‑business risks. The episode aimed to give both potential LPs and sponsor‑fundraisers a clear checklist of what questions will actually matter in a private deal conversation.
Why it matters
Bill and Mills frame LP diligence into three categories: business (is it durable and a good industry fit), deal structure (capital stack, pref, waterfalls, fees, taxes), and sponsor (experience, skin in the game, personal guarantees) — Bill led this taxonomy in the conversation.
Key details
- Typical minimum checks on deal-by-deal private investments are usually $100,000–$250,000 (Bill and Mills); aggregator platforms can lower minimums to roughly $10,000–$25,000 but Mills and Bill view very small $10K checks as a potential negative signal.
- Common structural terms to watch: 2% management fee and 20% carry (‘two-and-twenty’) is the typical private-equity style split mentioned by Mills and Bill; many deals also include a preferred return (Bill noted typical pref rates of ~8–11%).
- Bill emphasized the limits of preferred returns on operating businesses (prefs often accrue or can be paused in a downturn), while Mills places more weight on pref for asset-backed real estate cash-flow deals — they disagreed on how much weight to give prefs.
- Both hosts stressed sponsor alignment: prefer sponsors who put material capital relative to their net worth, and who personally guarantee bank debt (PG) on smaller deals — Mills said sponsor PGs increase operator motivation and are common on SBA-backed deals.
- Sources of deal flow named by Mills: aggregator sites (e.g., CapitalPad), membership groups (Long Angle, YPO, EO), and local angel/regional networks; Mills recommended being “actively looking” and staying top-of-mind with other investors to get invited to deals.