How to Unlock Value in Founder-Investor Partnerships

Founder-led companies hold immense potential for growth in private equity–backed environments. The psychological DNA of many founder-leaders—characterized by self-reliance, creativity, and deep emotional investment in their businesses—sets them apart from traditional CEOs, whose acquired expertise and pattern-recognition skills are more suited to incremental growth. Given the attractive upside, private equity firms are increasingly doing deals involving founder-led companies: The proportion of such transactions jumped from 54% in 2020 to 62% in 2023, according to PitchBook, with the dollar value of founder-involved deals increasing from 31% to 44%.

So what happens when founder-led companies have to engage with their new private-equity owners? There’s often friction, especially at critical inflection points throughout the deal cycle. Many of these firms are led by entrepreneurs whose personal characteristics are significantly “spikier” than those of nonfounder CEOs: Their strengths are more pronounced—and so are their weaknesses. Founders tend to think of their businesses as extensions of their identities and legacies, whereas PE investors tend to focus on scalability, efficiency, governance, and quantifiable value creation. That can create misalignment, stifle growth, and leave value on the table.

When handled well, however, founder-PE partnerships can yield outsize results. In private equity–backed environments, companies with deeply involved founders can outperform nonfounder-led companies significantly, delivering faster and greater value creation. In fact, a Bain study revealed that companies with deeply involved founders performed three times better than nonfounder-led companies over a 15-year period. But generating this level of performance over the deal cycle is no small feat. It requires navigating relational challenges that arise throughout the holding period.

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