When Steve Lebowitz and Drew Sheinman first met, they found they both believed that the private equity (PE) model of investing was ripe for disruption. They observed that PE firms were dominated by finance professionals, yet many of the PE-owned companies needed more than financial engineering. In 2019, Lebowitz and Sheinman, along with Austin Ramos and Larry Rothstein, formed Brand Velocity Partners (“BVP”). The partners rallied around the notion that brand building, along with traditional financial expertise, could unlock immense value across a wide range of companies.
The new PE firm targeted businesses with established, growing brands that had not built cohesive marketing strategies. The partners believed that these businesses would stand to gain the most from BVP's marketing resources. Further, rather than build a fund, the partners chose to raise investor capital on a deal-by-deal basis, which would lead to each acquired company having its own set of limited partners (LPs) who were offered standard PE terms.
BVP quickly acquired three companies (as well as two “add-on” acquisitions that were integrated into the platforms) and began employing each partner's experience across marketing and operations. Simultaneously, each portfolio company’s management team began tapping into the marketing and financial resources of their new investor group to accelerate business growth and value creation.
As BVP’s portfolio developed and the team’s vision for the firm evolved, Lebowitz brought a novel idea—what if BVP’s partners were to allocate 10% of their total carried interest pool to those portfolio company employees who were not in senior management, and therefore would not traditionally participate in an equity incentive plan, an idea Lebowitz referred to as “Share the Gains”? The other BVP partners immediately embraced the concept.
Though the shared economics idea seemed simple enough, BVP's partners quickly realized that they would have to consider a myriad of implementation issues. For example, a comprehensive Share the Gains policy would have to resolve practical issues (e.g., how should BVP reward employees who leave before the hold period?) as well as account for messaging to the associated employees, senior managers, and investors. BVP’s partners wanted to frame "Share the Gains" to increase the engagement of employees with their firms, and they knew the details would be important.
Citation: Jean Rosenthal, James Baron, James Choi, and Jaan Elias, "Brand Velocity Partners: Reconsidering the Private Equity Model", Yale SOM Case 21-012.