You sold 60% of your company to a private equity firm. The headline number looked great. The growth capital seemed like exactly what you needed. Then the invoices started arriving.
Most founders focus on valuation and deal structure during negotiations. That's understandable—those numbers are big and obvious. But the ongoing costs of PE ownership often surprise founders who didn't read the fine print carefully enough, or who assumed "standard terms" meant "reasonable terms."
The management fee drain
Most PE firms charge an annual management fee, typically 1.5-2% of committed capital. On a $20 million investment, that's $300,000-$400,000 per year flowing out of your company to the fund—regardless of whether they're adding value that year.
This fee exists on top of any board compensation, consulting arrangements, or "strategic advisory" fees the deal documents might include. I've seen situations where the total annual cost to the company exceeded $600,000 before the PE firm did anything beyond showing up to quarterly board meetings.
The math gets uncomfortable fast. If your business runs at 10% net margins, you need $6 million in additional revenue just to cover those fees. That's not growth capital working for you—that's growth capital paying for itself.
Transaction costs you absorb
Here's one that catches founders off guard: you're probably paying for both sides of the deal.
The PE firm's legal fees, due diligence costs, accounting reviews, and transaction advisory fees often get charged back to the company at closing. On a middle-market deal, this can easily run $500,000-$1.5 million. That money comes out of your proceeds or gets added to the company's debt—either way, it's your problem.
Then there's the refinancing. PE firms typically restructure the company's debt at closing, which means new loan origination fees, legal costs, and sometimes prepayment penalties on existing facilities. Another $100,000-$300,000 that wasn't in your mental model of the deal economics.
The monitoring overhead
PE ownership changes how you run your business operationally. Not always badly—but always expensively.
Expect to spend significantly more on financial reporting, audits, and compliance. Most PE firms require audited financials, quarterly reporting packages, and detailed KPI tracking that goes well beyond what a founder-led business typically produces. If you don't have a strong finance function, you'll need to build one—or outsource it at premium rates.
Board meetings become productions. Materials need to be prepared weeks in advance. Management spends days getting ready for each session. The opportunity cost of your leadership team's time is real, even if it doesn't show up on an invoice.
I've worked with companies where the CFO estimated 15-20% of their time went to PE-related reporting and communication that didn't exist before the transaction. That's a meaningful productivity hit on one of your most expensive employees.
The exit pressure costs
PE firms have fund timelines. They need to return capital to their investors within a defined window, usually 5-7 years. This creates pressure that shows up in unexpected ways.
You might be pushed toward acquisitions that don't make strategic sense but do make the company look more attractive for exit. You might underinvest in R&D or maintenance capex because it hurts short-term EBITDA. You might lose good employees who don't want to stick around for the uncertainty of another ownership transition.
These costs are hard to quantify, but they're real. The decisions you make under exit pressure often aren't the decisions you'd make if you were building for the long term.
Where to start
If you're considering a PE transaction, model the total cost of ownership, not just the headline valuation. Ask for specific numbers on management fees, transaction cost allocation, and expected reporting requirements. Build those into your financial projections and see if the deal still makes sense.
If you're already PE-owned and feeling squeezed, you're not alone. Understanding exactly where the money goes is the first step toward having productive conversations with your board about what's actually sustainable.
At Laverton Advisory, I help founders think through these economics before they sign—and navigate them after they do. Sometimes the deal is still worth doing. But you should know what you're signing up for.
Derek Hammock is a CPA and fractional CFO at Laverton Advisory. He works with founder-led businesses to build the financial clarity they need to make better decisions.