How to Buy a $2m Tree Business | Kaustubh Deo Interview

PE Dynamics

Kaustubh Deo provides a detailed look into the dynamics of private equity, explaining how funds are structured and the inherent need for business sales. He notes that private equity funds typically operate on a seven-year hold model, driven by the structure of capital commitments from institutional investors like pension funds 1. This model necessitates selling businesses to realize profits, as fund managers are compensated based on these profits. Kaustubh highlights the evolution of private equity with longer-term vehicles, yet emphasizes that the core model still revolves around exiting investments 2.

Private equity is fundamentally like an alternative investment vehicle. It's a way for large investors to attract higher returns.

--- Kaustubh Deo

This contrasts with small business owners who often aim to buy and hold businesses indefinitely.

   

Transitioning

Transitioning from private equity to small business ownership, Kaustubh shares his motivations and challenges. He reflects on his time at Bain Capital and Searchlight Capital Partners, where he felt disconnected from the operational aspects of businesses 3. This realization, coupled with the frustration of having to sell successful businesses, drove him towards a self-funded search for a business he could own long-term. Kaustubh found fulfillment in the hands-on management and community involvement that small business ownership offers 4.

I think I want to look a little bit more like the CEOs of the portfolio companies I worked with.

--- Kaustubh Deo

His journey underscores the appeal of direct business engagement over the abstract nature of private equity.

   

Business Models

Comparing private equity and small business models, Kaustubh highlights key differences in investment strategies and business engagement. In private equity, the focus is on improving and selling businesses for profit, often without deep involvement in day-to-day operations 5. In contrast, small business ownership involves a more personal connection to the business and its community, as seen in Kaustubh's tree service business in Seattle. He values the ability to nurture long-term relationships with clients and employees, which contrasts with the transactional nature of private equity 6.

I like trees. I don't want to be cutting down trees we don't have to.

--- Kaustubh Deo

This shift from a high-level investment approach to a more grounded, community-focused business model reflects a significant change in priorities.