CIO Anurag Gupta on taking the private equity plunge

Of all the trade-off decisions you may have to make as an IT executive, few stand to alter the course of your career as dramatically as that of whether to serve a firm owned by private equity (or “PE”).

On the one hand, such firms (often referred to as portfolio companies, or “PortCos”), can excite and inspire, especially when turbo-charged with capital and expertise. If the PortCo sells or goes public, the people who got it there will likely profit financially, intellectually, and professionally. On the other hand, because PE firms work under tight timelines and answer to accredited investors, they tend to set an operational tempo for their PortCos that exceeds that of almost any other corporate theater.

Few people can frame this trade-off as orderly and as soberly as Anurag Gupta, who has worked in technology leadership for both publicly traded and PE-owned companies. Today he serves as the CIO of Orlando-based Signature Aviation, itself owned by a consortium of PE firms.

“The intensity of action-driven culture is high,” he says. “There’s little place to hide, and if you don’t deliver, the PE firm or the PortCo won’t hesitate to make changes. So you have to ask yourself: Can you handle this fast-paced and driven environment and the responsibility that comes with it?”

If so, few environments will afford you such a direct chance to prove your chops, he says. As Sinatra said of the Big Apple: “If you can make it there, you can make it anywhere.”

‘You do not have the luxury of linear thinking’

A PE firm is accountable first to its Limited Partners, investors who buy in with a guarantee from the company that their money will grow by a specified amount and within a specified length of time. To achieve that growth, most PE firms purchase controlling interests in companies in which they believe there is significant value to be created. PE firms hold tremendous sway over these PortCos, and they typically manage them more aggressively than the boards of publicly traded companies would.

This pressure compounds when the PE managers invest their personal wealth in the assets they acquire, which they often do. “One of your owners likely has a substantial stake at hand,” says Gupta.

To drive the performance of their PortCos, PE firms will pull many levers beyond the well known tactic of cost optimization. These might include capital allocation, lean ways of working, digital transformation, and operational effectiveness, to name only a few.

PE firms see the CIO organization as “a swiss-army knife,” capable of pulling many of those levers to transform a company and improve its offerings, says Gupta. Though exciting, this puts immense pressure on CIOs to deliver measurable value fast and on multiple fronts.

“You do not have the luxury of linear thinking,” Gupta says. “You can’t think, ‘In my first two years, I’ll focus on foundations. I’ll get cyber right, then service desk, then infrastructure.’ You must address all of those, even in the first six months. You will simultaneously have to play the role not only of the CIO but of the CISO, chief digital officer, and chief transformation officer, and likely more. And this is where the excitement is.”

You can also expect to do much of this without any additional funding, perhaps with less. This might seem ironic — companies generally sell to PE for access to capital — but one of the reasons PE firms have the capital they do is because they manage it fastidiously. You must manage your budgets accordingly, tracking every dollar and measuring its value. “Every cost is under scrutiny,” says Gupta.

One way to create value quickly while protecting your budget is to put process before technology, as process will be what sustains most capabilities after the project ends. Process, Gupta feels, should account for more than half of most solutions. “You can’t be excited about technology only. You have to want to solve the problem. If technology has a role to play, okay, but don’t let it account for 80% of the solution by default.”

CIOs working for PortCos first need to know where to focus. Gupta suggests starting with the Investment Committee (IC) case, the report that details why a PE firm wants to invest in a particular company. “That investment thesis probably won’t say much about IT directly,” he says, “but it will give the commercial and operational rationale for the investment. From those you can infer what IT needs to do.”

Gupta also stresses the need to build relationships with PE stakeholders early and understand the underlying dynamics. “You have to appreciate what’s in it for the PE group and the PortCo management team,” he explains. “Many PE deals today are consortium deals involving several PE firms. Although those firms may share broad goals, they may have competing ideas about how to satisfy those goals.”

Finally, expect to get your hands dirty, warns Gupta. You’ll have to in order to keep everything on track while staying intimately familiar with your projects so you can report on them frequently and in great detail, which you will have to do. Indeed, the frequency of communication with PE advisors might surprise CIOs who come from more traditional backgrounds. Said another CIO who recently took a job at a PE-backed firm: “We email every day. And we frequently meet or call. Before, I might have spoken to the CEO once a month, if even that.”

What’s in it for you?

Considering all the pressures and constraints, why should you — or any CIO — choose to work for a PE-owned firm?

For one, compensation. “If your timing aligns with that of the private equity managers,” explains a CIO who works for a PE-backed firm, “and the company sells or IPOs, you’ll probably make many multiples of what you would elsewhere. It can be very lucrative.”

Working in PE can also accelerate your professional development. Not only do you learn to do more with less; you get to prove yourself to a cadre of (probably) well-connected investors who will remember you when they close their next deal, when they are asked to recommend leaders for other positions, or when they consider who might be a good fit for their own stable of operating experts.

Although PE managers will expect you to do more with less at first, they’ll respond favorably if you triumph, says Gupta. “They see [technology] as such an important lever, which means IT is going to have a pronounced role in the organization. You won’t be a back-office function.”

Gupta says a company may see the capital available for deployment jump by a factor of 10 after closing a deal with private equity, giving the savvy CIO a chance to drive projects that set him or her apart.

“If you’re a CIO who really wants to make an impact, PE might be the way,” says Gupta. “The owner has already concluded IT can make a real difference, so you don’t need to convince people you deserve a seat at the table. You just have to keep it and continue elevating it from day one.”