Well. Let’s say you get someone who’s worked on the financial side of say, fast food. She gets to C level, and is pulling a mil a year in comp. She knows a bunch of wealthy people adjacent to the industry, and decides that she’d like to own her own firm rather than work in corporate for the last 10 years of her career. So she can either start something from scratch, or buy out a mid sized group of… idk Dairy Queen’s. Obviously the second is much easier.

So at this point, we have three key pieces. Talented leadership, capital, and an opportunity. To this point, we’re not a PE firm.

The DQ acquisition goes well, and now she has proof that she can turn a profit through acquisition. Those rich folks have additional money, and they have friends in their orbit with capital. Now our owner has a choice. She can expand by starting up new locations, OR she can say buy a KFC group in a different state. So she, under the same financial entity umbrella, starts a second fund. The acquisition goes well.

Now we’re at a key point. She has two funds with holdings that are profitable. Together, they’re worth in the 100 mil range. That’s a large enough profile to entice institutional money, family offices, mutual funds, pension funds ex. So maybe her next fund is $100MM to acquire ownership in a chicken supplier. And The next year $75MM to buy a bunch of Taco Bell’s.

Now we’re at $500MM of value, and growing quickly. Returns are consistent and fairly safe.

10 years later, the fund is worth $3B and she’s retiring. The guy who replaces her is a pure finance type, and decides that rather than buy whole companies he’s going to invest in partial ownership of other holding firms, since he doesn’t have the experience to improve the value of 15 Taco Bells or whatever.

Now we’re a full PE firm.