In 2024, portfolio ops has become table stakes, but 10 years ago it was MUCH less common, and 20 years ago it was a new idea. In 3,000 characters or less, here’s a brief history of portfolio ops…
𝟭𝘀𝘁 & 𝟮𝗻𝗱 𝘄𝗮𝘃𝗲𝘀 𝗼𝗳 𝗣𝗘: 𝗕𝗲𝗳𝗼𝗿𝗲 𝗣𝗼𝗿𝘁𝗳𝗼𝗹𝗶𝗼 𝗢𝗽𝘀 - conventional wisdom seems to be that modern private equity was invented after WWII when some of the first American Venture Capital firms were founded. The next big inflection point came in the 1980s, the leveraged buyout era, when PE boomed.
In the 20th century, there was limited focus on value creation (with some possible exceptions, e.g. Bain Capital founded in 1984 has had some ops in its DNA from the beginning).
𝗧𝗵𝗲 𝗔𝗿𝗿𝗶𝘃𝗮𝗹 𝗼𝗳 𝗣𝗼𝗿𝘁𝗳𝗼𝗹𝗶𝗼 𝗢𝗽𝘀 - as investing became more crowded and competitive, firms began thinking more deeply about boosting returns by accelerating value creation. They initially landed on the concept of staffing internal consulting teams rather than paying $$$ to McKinsey, BCG, or Bain.
From 2000-2005, some big name (and big AUM) firms launched their consulting arms:
- 2000 - KKR launched Capstone
- 2000 - Vista was founded with its Vista Consulting Group
- 2005 - Insight launched Onsite
𝗠𝗶𝗱𝗱𝗹𝗲 𝗠𝗮𝗿𝗸𝗲𝘁 𝗣𝗮𝗿𝘁𝗶𝗰𝗶𝗽𝗮𝘁𝗶𝗼𝗻 - in the 2010s, more middle-market and lower-middle-market firms decided to build out their own portfolio ops teams. JMI, Serent, Turn/River, PSG, Silversmith, Level and others all hired or promoted the current Heads/Partners of their ops teams in this period.
Having an ops team is valuable in multiple ways–for accelerating revenue/margin improvements, and also for prospecting and fundraising. But building an internal consultancy is expensive. With $1B or $3B or even $10B in AUM, it’s hard to support a large, consultancy-type ops team like the ones the $100B AUM funds pioneered.
And that brings us to…
𝗠𝗼𝗱𝗲𝗿𝗻 𝗣𝗼𝗿𝘁𝗳𝗼𝗹𝗶𝗼 𝗢𝗽𝘀 - “the router model” takes hold—firms that couldn’t afford (or didn’t want to support) large internal consulting teams are leveraging tech and their broader networks to amplify the impact of fewer ops FTEs.
The firm team becomes the “hub”, knowledgeable about both the firm’s portfolio companies and their broader resources, and able to channel questions and needs into reusable assets, one-to-many discussions, and networks of advisors and vendors.
My prediction for the 2020s: we're entering an era of higher leverage value creation.
Founder @ SolvinIT | Product and GTM Strategy | Investor and Family Office Solutions
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