Capital has become commoditized with thousands of PE firms competing. The old model of buying low and selling high with minor tweaks no longer works. True value creation has shifted to hands-on operational improvements that drive long-term growth, a skill many investors lack.

New private equity managers often define their strategy too broadly. The winning approach is to first dominate a narrow swim lane, like 'buy-and-builds of blue collar services,' to build credibility. They can then earn the right to expand into adjacent markets in later funds.

A common mistake in venture capital is investing too early based on founder pedigree or gut feel, which is akin to 'shooting in the dark'. A more disciplined private equity approach waits for companies to establish repeatable, business-driven key performance metrics before committing capital, reducing portfolio variance.

Unlike venture-backed startups that chase lightning in a bottle (often ending in zero), private equity offers a different path. Operators can buy established, cash-flowing businesses and apply their growth skills in a less risky environment with shorter time horizons and a higher probability of a positive financial outcome.

Investors should seek "boring" companies that are well-oiled machines with repeatable processes and disciplined execution. The goal is consistency in outcomes, not operational excitement. Predictable, relentless execution is what generates outsized, "exciting" returns.

The era of generating returns through leverage and multiple expansion is over. Future success in PE will come from driving revenue growth, entering at lower multiples, and adding operational expertise, particularly in the fragmented middle market where these opportunities are more prevalent.

In today's crowded market, the key PE differentiator is no longer financial engineering but the ability to identify and cultivate relationships with target companies months or years before a sale process. This provides the necessary time for deep diligence and strategic planning.

PE deals, especially without a large fund, cannot tolerate zeros. This necessitates a rigorous focus on risk reduction and what could go wrong. This is the opposite of angel investing, where the strategy is to accept many failures in a portfolio to capture the massive upside of the 1-in-10 winner.

Venture capitalists often have portfolio companies that are profitable and growing but will never achieve the breakout public offering VCs need. These companies can become a distraction for the VC and can be acquired by PE investors who see them as attractive, stable assets.