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Founding Partner

Definition - What does Founding Partner mean?

A founding partner is a term used to describe the shareholder(s) of a company sold to a private equity-backed platform company very early on in a company roll-up. When a platform company is being developed, several targets in the industry are identified for potential acquisition and integration. Usually, a larger company with existing management and infrastructure is acquired first, and then other bolt-on acquisitions are added on.

The shareholders of the original larger company "get in from the ground up" and usually leave some or all of their equity in the company alongside the investment from venture capital or private equity. Because these shareholders are in first, they are referred to as the founding partners of the platform.

Divestopedia explains Founding Partner

Typically, it is best for a seller to get in earlier into a company roll-up. Being a founding partner means that the seller has received stock valued at the original "in" cost. Sellers of bolt-on companies added on later usually receive stock valued at a higher price than that of the founding partner. This is because a properly executed roll-up in a good market will likely be revalued higher by the private equity firm after every transaction. With the higher stock valuation, there is less dilution to the existing shareholders (particularly the founding partners) since less stock at the higher value needs to be issued for every deal. In addition, founding partners usually take leading management positions in the roll-up, and can even occupy board seats in the platform company.

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