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07. November 2025
Private Equity Firms Reel From First Board Meeting Bombshell
The First Board Meeting Surprise: A Common Problem for Private Equity Firms and CEOs
In the world of private equity, nothing can be more frustrating than a disagreement between the CEO and the investor at that first board meeting. After months of negotiations, both sides have played their hand, and yet, something is revealed that cannot be easily reconciled. This phenomenon, known as the “First Board Meeting Surprise,” has been experienced by many private equity firms over the years.
The problem arises when one side or the other shares information or intentions not revealed pre-signing, in a way that can’t be easily reconciled between the private equity partner and the founder or CEO. This surprise can lead to tension, frustration, and even walk-aways from deals. However, it’s essential to recognize that this problem is not caused by bad actors trying to intentionally mislead but rather by the natural dynamics of the investment process.
In a typical deal process, the purchase of a company is a one-time, distributive negotiation with large dollars at stake, and it can be adversarial, full of tension. On the other hand, the relationship between investor and CEO in operating and building a company is a repeat-player game that requires a different approach. The problem arises when these two approaches collide, leading to the First Board Meeting Surprise.
Consider an example where an operating partner shows up at the first board meeting and shares vetted candidates to replace an executive the CEO feels loyal to. The CEO wonders why they were kept in the dark about their new investor’s view on this key executive before signing. Perhaps, thinks the CEO, there are other things I wasn’t told. The new investors wonder why the CEO is reluctant to build an “A” team. Neither side backs down; both feel justified. This is a classic example of the First Board Meeting Surprise.
Research has shown that roughly three-quarters of portfolio company CEOs are replaced during a fund’s hold period, with a majority of those happening in the first two years. This trend highlights the importance of building trust and alignment between investors and CEOs from the outset.
One solution to this problem is to adopt repeat-player thinking before signing the deal. By sharing our underwriting plans – due diligence findings, best “secret sauce” ideas, and proposed actions – with the founder and agreeing to it in writing before signing the deal, we can establish a clear understanding of expectations and goals from the outset.
However, this approach comes with risks. The founder/CEO might see our work and insist on a higher price, shop those ideas to a competing bidder, or simply adopt our best ideas without taking our investment at all. The founder/CEO might disagree with the course of action entirely and simply walk away. We then lose a deal we could otherwise have closed.
Yet, perhaps the founder/CEO would be excited about the action plan, provide input to improve it, and refocus their energy entirely on where we were going to go together. And because nothing knowable in advance of the deal on our side would remain hidden, and reciprocal engagement from the founder/CEO on the plan would reveal their true views on critical items, there would be no First Board Meeting Surprise.
By adopting this approach, we can create a partnership built on trust and alignment. This requires us to be flexible and adaptable, but it’s essential for building long-term success in private equity investing.
The Five-Point Plan: A Solution
We turned this approach into a process we call the Five-Point Plan, which involves five key actions to take after the deal closes:
- Integration: Develop an integration plan that outlines how our teams will work together to build out the company.
- Restructuring: Identify areas where we can streamline operations and make cost savings.
- Investment: Outline specific investment plans for the company, including funding requirements and timelines.
- Talent: Agree on key talent acquisition and retention strategies.
- Governance: Establish a governance structure that ensures effective decision-making and communication.
By having this clear plan in place from the outset, we can eliminate the problem of the First Board Meeting Surprise because no one has any surprises to share. We’ve accepted that the price for materially improving sponsor-CEO alignment in the deals we do close is that we will lose some deals we could have closed but for agreement on the Five Point Plan.
The Benefits of a Repeat-Player Approach
By adopting a repeat-player approach, we can minimize the risk of friction between the CEO and Board due to differing goals. This approach is particularly effective in founder-led technology buyouts, where it’s essential to have an open and transparent discussion about expectations and goals.
Expecting the Unexpected
While no deal is ever completely predictable, there are some surprises we can avoid by adopting a repeat-player approach. By showing our hand more openly before closing and inviting the CEO to do the same, we can create a partnership built on trust and alignment.
In conclusion, the First Board Meeting Surprise is a common problem that affects many private equity firms and CEOs. By adopting a repeat-player thinking approach before signing the deal, we can eliminate this problem and build trust and alignment with our partners from the outset. This requires us to be open and transparent about our underwriting plans, but it’s essential for creating a partnership built on shared goals and expectations.
By sharing our Five-Point Plan with the CEO, we can establish a clear understanding of what we’re trying to achieve together. By adopting this approach, we can minimize the risk of friction between the CEO and Board due to differing goals and build long-term success in private equity investing.