How to Unlock Value in Founder-Investor Partnerships

Founder-led companies hold immense potential for growth in private equity–backed environments. The psychological DNA of many founder-leaders—characterized by self-reliance, creativity, and deep emotional investment in their businesses—sets them apart from traditional CEOs, whose acquired expertise and pattern-recognition skills are more suited to incremental growth. Given the attractive upside, private equity firms are increasingly doing deals involving founder-led companies: The proportion of such transactions jumped from 54% in 2020 to 62% in 2023, according to PitchBook, with the dollar value of founder-involved deals increasing from 31% to 44%.

So what happens when founder-led companies have to engage with their new private-equity owners? There’s often friction, especially at critical inflection points throughout the deal cycle. Many of these firms are led by entrepreneurs whose personal characteristics are significantly “spikier” than those of nonfounder CEOs: Their strengths are more pronounced—and so are their weaknesses. Founders tend to think of their businesses as extensions of their identities and legacies, whereas PE investors tend to focus on scalability, efficiency, governance, and quantifiable value creation. That can create misalignment, stifle growth, and leave value on the table.

When handled well, however, founder-PE partnerships can yield outsize results. In private equity–backed environments, companies with deeply involved founders can outperform nonfounder-led companies significantly, delivering faster and greater value creation. In fact, a Bain study revealed that companies with deeply involved founders performed three times better than nonfounder-led companies over a 15-year period. But generating this level of performance over the deal cycle is no small feat. It requires navigating relational challenges that arise throughout the holding period.

In our professional capacities, we spend much of our time advising founders and investors on how to optimize their partnerships. In this article, drawing on dozens of interviews and thousands of data points analyzed across PE-backed founder and nonfounder assessments, we explore three of the most common and consequential challenges in founder-investor relationships: cultural tension, control-related dynamics, and long-term alignment. Using real-world examples, we provide actionable insights to help founders and investors foster collaboration, agree on and adapt to shared goals, and unlock extraordinary value.

Cultural Tension

Founders and investors often find themselves at odds when changes that investors would like to make to grow the business are viewed by founders as eroding the company’s culture, history, or core values. Left unchecked, these tensions can derail the partnership and hinder value creation.

Consider the case of one founder and PE investor who were trying to work out a deal. The founder, who had built his business over the course of 25 years, relied in his decision-making on a trusted inner circle that included his wife, brother, and college roommate. Long before negotiations began with potential buyers, the founder and his inner circle had decided that his brother, the chief financial officer, would retire as soon as the deal was signed. When this plan was disclosed during the negotiations, the investor felt it was important that the founder’s brother remain at the company for six months post-close to oversee the handover. What seemed from the investor’s perspective like a reasonable operational request came across to the founder as a transactional demand that prioritized financial timelines over personal relationships. Feeling that the investor didn’t respect his values and priorities, the founder walked away from the deal and chose a lower bid from a PE firm that demonstrated greater cultural sensitivity.

Reflecting on the experience, the first investor told us, “With founder-CEOs, there is often a lot of history because the tenure of a founder is so much longer than that of the average CEO….You need to be mindful of that history and be ready to be engaged in it.” Despite offering the highest bid, the PE firm lost the deal because it failed to address what mattered most to the founder: loyalty to his trusted team, whom he considered friends and family first and colleagues second. “We did everything by the book,” the investor told us, “but we didn’t ask enough questions about the three or four people who mattered most to him. The key is to listen—to put yourself into that founder’s mentality.”

Founders and investors often find themselves at odds when PE changes aimed at growing the business are viewed by founders as eroding the company’s culture or core values.

By contrast, another founder shared with us how her PE investor demonstrated a readiness to build personal rapport, and how this established a level of trust and comfort that gave her confidence to move forward with the deal. “Our investor showed up really well,” she told us. “He had the company in his heart….He’s empathetic….He built up my confidence and energy. This was a huge part of figuring out which PE firm to go with during due diligence.”

Post-close, this trust deepened as the PE firm continued to prioritize the relationship, fostering a collaborative dynamic that helped the founder navigate the transition to a more structured operating environment. Rather than imposing changes unilaterally, the partner at the PE firm remained actively engaged, positioning himself as a sounding board. “Investors are conditioned to recognize patterns and quickly jump to a conclusion,” the founder told us. “It meant a lot to me when he would make himself available for two hours to talk things through and problem-solve with me. He was uniquely curious. He invested the time in understanding the artistry, creative side, and strategy before reaching a conclusion.”

This collaborative approach not only made the founder feel valued and heard but also smoothed the implementation of key operational changes. By slowing down, actively listening, and evolving his approach as the business grew, the private equity partner ensured that the founder remained engaged and energized throughout the holding period.

Founders, too, have a responsibility to approach investors with openness. A founder we worked with explained that being receptive to an unexpected opportunity led to finding the ideal partner. Initially, he and his cofounder were hesitant about meeting with a PE firm they knew little about because they’d recently had a negative experience with a different PE firm whose partners had talked down to them. Despite their initial reservations, the cofounders gave the new firm a chance—and were pleasantly surprised. “It was clear they cared about our people and the company we were building,” the founder recalled. The founders engaged with the investor, and the result was a successful partnership in which they have benefited from the investor’s expertise post-close.

To help founders and investors collaborate productively and successfully navigate complex cultural dynamics and emotional sensitivities, we’ve developed a set of practical recommendations.

Advice for founders

Showcase your culture. Help investors understand the secret to your company’s success. Invite them to tour the office, meet key team members, or attend a town hall. One founder we spoke with shared how, during due diligence, she walked her future investor through an internal presentation to highlight the company’s values. “It gave them a window into what makes us tick beyond the numbers,” she recalled. “Part of being a founder-CEO is taking people back to the first principles around why you exist.”

Approach investors with openness. Let go of preconceived notions that may cloud your view of who the right partner is. Encourage the investors to show you who they are, what they bring to the table, and what they care about—throughout the deal cycle. Engage them in the business to build a culture of collaborative problem-solving.

Be transparent about nonnegotiables. Identify and communicate the cultural tenets you want to preserve while signaling that you’re otherwise open to necessary changes. This clarity helps investors balance respect for your values with operational improvements they commonly recommend across their portfolio of businesses.

Think positively about team upgrades. View new hires as opportunities to amplify your vision and protect your legacy—and recognize that scaling often requires letting go of team members who may not thrive during the process. Fifty-four percent of the founders we studied delayed upgrading talent and removing underperformers. One founder-turned-board-chair acknowledged, “I had unbelievable allegiance to the CFO, having worked with her when the company was going bankrupt. We were in the trenches together. But when it came time to go public, I needed someone with a different skill set. The investor helped me see that she was an incredible accountant but not a CFO who could shepherd us through an IPO.”

Advice for investors

Build rapport early and often. Get curious, understand what matters most to founders and their teams, and anticipate what might derail your relationship. Early life experiences—particularly hardships—can leave an indelible mark on founders’ relational approaches. Their formative years often teach them to rely on themselves and be wary of anybody who tries to confine them to a box. As a result, founders tend to form fiercely loyal bonds with a select few people—usually those who believed in them before success was certain. Get to know their trusted inner circles, and invest time in building those personal connections, inside and outside of work, to establish trust.

Embrace the founder’s idiosyncrasies. Learn what makes a founder exceptional—be it product expertise, a client network, or creative vision—and seek to channel those strengths proactively. Although it’s easy to see a founder’s eccentricities as something that stands in the way of efficient scaling, it is often those characteristics that led to the company’s success in the first place. (Creative, innovative thinking was a core strength for more than a third of the founders in our dataset, and the ability to solve consumer pain points was a core strength for three-quarters.) Understanding what motivates the founder is equally critical. For some founders, this may be wealth or power. For others, the underlying drivers may be less obvious. Ask yourself how you can energize the founders you work with to best harness their unique strengths throughout the holding period.

Introduce changes as pilots. Ease founders’ potential concerns by framing initiatives as experiments. When emotions are heightened, positioning ideas as opportunities in support of a founder’s vision and legacy will lower the temperature. “Emotion is hard to counteract with facts,” one private-equity portfolio group leader explained to us. “With founders, you have to engage in a completely different way and rethink the approach. You have to leverage data and emotion, or data via an emotional lens.”

Control-Related Dynamics

Governance and reporting structures often become points of contention in founder-investor relationships. Founders often view formal structures and oversight as constraining, while investors tend to see them as essential for scalability and accountability. Without alignment, these differing perspectives can lead to delayed decision-making, board dysfunction, frustration, and missed opportunities.

When one PE firm introduced its best-practice governance framework to a newly acquired portfolio company, the founder-CEO initially embraced the changes, wanting to align with the investor’s expectations and demonstrate his willingness to collaborate. He adhered to the new key performance indicators, reporting requirements, and approval processes, understanding their importance in driving the company forward in this new chapter.

However, as the months progressed post-close, he began to feel that these mandates, although well-intentioned, were stifling his creativity and pulling him away from the customer focus that had been central to the company’s—and his—success. “PE value-creation plans often feel sterile to founders, leadership teams, and employees,” he explained to us. “It can create a sense that the days of innovation and vibrancy are over, replaced by a focus solely on financial calculations.”

Feeling disconnected from what made his business successful prior to the acquisition, the founder raised his concerns with the PE firm. He acknowledged the importance of reporting and metrics but asked for a discussion about how best to preserve the creativity and customer focus that had fueled the company’s growth to that point.

Rather than surprising founders with new processes, which can feel threatening or frustrating, engage them in decision-making early on.

That conversation was a turning point in the relationship. Together, the founder and the investor revised the value-creation plan to incorporate customer focus as one of its core pillars, which in turn led to meaningful discussions about what the company’s future customer experience should look like. They asked critical questions such as, When a customer writes a review for us in four years, what do we want it to say? What will customers think is the value we deliver, and how should that evolve from what it is today?

That collaboration transformed the value-creation process from one that felt impersonal into a tailored framework that aligned the PE firm’s structural priorities with the founder’s vision. “If the value-creation plan has seven components, make sure one of those is dedicated to the evolving value narrative and innovation strategy,” the founder advised. “Make it real. A private equity firm needs to know businesses run on the creativity and vibrancy of people. It’s important signaling.”

If founders and investors are to succeed in their partnership, they need mutually acceptable strategies for governance and authority. There’s a lot each side can do to reach agreement.

Advice for founders

View governance as a tool to amplify your strengths. Systems and processes can free you to focus on what you do best, whether that’s product innovation or client relationships or something else. In fact, our research reveals that 76% of successful founder-CEOs underinvest in operational governance. Given that common blind spot, be open to how the investors’ operational frameworks or playbooks might support you. Perhaps you’ll find ways to streamline some of the tedious processes that sap your energy, for example. Everybody can benefit. As one founder-CEO told us, “The deal team is there to help you….Set up your CFO to talk to the team independently of you. Let your executive team build relationships with them.”

Hold regular pulse checks, and don’t hold back. Frequent check-ins with your PE investors will ensure alignment and minimize surprises—a common source of frustration for investors. Use these conversations to identify pain points, propose adjustments, and problem-solve collaboratively in real time. “You can’t just share the good news,” one founder told us, reflecting on the value of open, agile communication. “You have to share the bumps…but don’t give them a problem without a plan.” One private-equity partner told us that she and the founder-CEO do a regular catch-up call. “There’s nothing I don’t want to know,” she said. “I want to hear the weekly update—what has he focused on, customer wins and losses, what’s keeping him up at night, what’s working, and what’s not.”

Advice for investors

Frame governance as enabling freedom rather than imposing constraints. Show founders how structured processes can allow them to focus on what they do best during the scaling process. Remember that you’re partnering with someone who probably has succeeded up to this point by finding clever workarounds to established systems. The goal isn’t to stifle the founder’s entrepreneurial spirit but rather to channel it using well-defined guardrails, the nature and value of which everybody can clearly see and understand.

Codesign processes. Founders typically have an independent streak, a history of creatively defying conventions, and a skepticism of authority that may result in hesitancy to cede control. When we analyzed the most-common strengths and gaps of successful founder-CEOs, we found this was a developmental area in 58% of the dataset. Rather than surprising founders with new processes, which can feel threatening or frustratingly mundane, engage them in decision-making early on to ensure that they feel ownership. Have candid discussions, proactively, about potential friction points, asking questions such as, How will key decisions be made? What merits a quick call versus a formal meeting? How will board meetings be structured? One former founder-CEO told us that he loved working with his investor because they were aligned on a plan they had put in writing: “‘This is how we run, and this is how we delegate to the board.’ No surprises.”

Give the rationale behind your approach. To encourage buy-in on your reporting requirements, explain the “why” behind them. Be selective on the data you ask for and show the founder how you are using it in your day-to-day modeling and forecasting. “We make sure to communicate why we need what we need,” one investor told us. Another investor always shares a booklet of the firm’s best practices with both founder-CEOs and nonfounder CEOs so that they have early insight into what to expect post-acquisition.

Long-Term Alignment

Founders and investors often enter partnerships with differing visions for the future. Founders, deeply connected to their original mission, may prioritize innovation, culture, or customer impact, whereas investors tend to focus on financial returns and scalability within a defined holding period. Without clarity on long-term goals—such as exit timing, value-creation plans, and the founder’s post-close role—founders risk feeling blindsided by shifting expectations, and investors risk feeling frustrated at their inability to drive progress. Among founders who’ve sold their equity, financial motivations vary: Some may continue to be energized by the incentive plans that are a prominent element in compensation at private equity–owned companies, but others may have achieved significant wealth when they sold the company, making them more interested in mission, meaning, and nonfinancial rewards as they look to the future. Adding to the complexity, founders and investors may lack full awareness of their own underlying motivations.

During one due-diligence process, the founder and the PE firm collaborated closely to create a comprehensive five-year strategic plan. They aligned on key priorities, clearly defining what to invest in, what to avoid, and how to evaluate each decision. Together, and in collaboration with a management consulting firm, they identified flagship markets to expand into, strategic bets to explore, and a repeatable framework through which to focus energy, time, and resources. “This shared language became a cornerstone of every business case we created,” the founder told us, “ensuring alignment on the value-realization plan from the start.”

The team members also were aligned on their approach to growth, balancing organic and inorganic strategies. The PE firm emphasized growth through M&A, but the founder ensured that there was clarity and alignment on the investments needed to support both strategies. By settling on that approach, the company achieved its five-year targets two years ahead of schedule.

But this success masked a deeper misalignment. The management team had assumed that the five-year goal was the ultimate target. “We hit the audacious goal we’d set, so the team assumed we were done,” the founder told us. “But our private-equity investor viewed the five-year plan as a midpoint in a broader vision.” The disconnect between the original plan and the evolving expectations created tension, negatively affecting morale and continuity. When the PE firm pushed to extend the timeline, the founder faced challenges with retention.

Looking back, the founder told us that he’d missed an opportunity to manage expectations post-close. “I could’ve done a better job communicating that our goals might evolve as we hit milestones,” he said. That experience taught both the founder and the investor the importance of revisiting and realigning on long-term goals throughout the holding period to ensure sustained engagement and motivation.

We’ve devised several strategies for founders and investors to remain aligned throughout the deal cycle.

Advice for founders

Do your own due diligence. Assess your PE investor’s track record with founder-led companies and agree on ways of working before closing the deal. “Have an honest discussion about what you want from the investor across the whole time horizon,” one founder told us. “Ensure that you understand the firm’s goals—and how they converge with your approach—before proceeding. As one founder-turned-chair told us, “If you’re the kind of CEO who says, ‘It’s my ball, and we’re going to play by my rules,’ it won’t end well.”

Communicate a shared vision. While investors have a fiduciary duty to deliver financial results, it’s important that they also believe in and invest in your mission. Ensure that you and the investor align on strategy and values beyond financial goals. “If the investor wanted to go in a direction we weren’t comfortable with,” one founder told us, “we would be done right there.”

Prepare for your role to evolve. Accept that your goals—and your role—may need to change as the company grows. Recognize that at some point you may need to step out of the CEO position—as 46% of founders do before the end of the holding period. Planning for this possibility lays the foundation for long-term success. If you decide to stay, define your post-close role early and revisit it as the business grows. “I didn’t realize how intense the PE environment would be,” one founder-CEO told us. “Even when you’re doing well, the scrutiny is nonstop. It’s a different level of intensity.”

For most founders, one of the biggest challenges is relinquishing control over many aspects of the business and recognizing that effective scaling requires building a team and systems you can trust. Throughout the deal cycle, focus on empowering that team. “I moved from leading from the front to leading from behind very quickly,” one founder-CEO told us. “As soon as you see someone else who can lead from the front, give them that opportunity. You need to find faith in others’ abilities to do good things. As the founder, you can then focus on leading the things that are really important.”

Advice for investors

Align on long-term goals early. Have candid discussions about exit timing, return expectations, and the founder’s evolving role. Ask, “What does success look like for you?” As one portfolio group leader put it, “You’re helping founders realize their vision and their dream. They should come out of it feeling that their baby, their business, has been well looked after and turned into something they are proud of. It’s not always about money for them.”

Revisit and adapt the value-creation plan. Be willing to adjust plans as market conditions and priorities change. While it’s important to be up-front about your expectations and aspirational timelines, show flexibility where possible to make room for the founder’s priorities. One founder-CEO recommended, “It’s important to be clear on where your PE investors want the company to be in three to five years and where you want it to be, and you need to stay aligned on what success looks like. It will change.”

Leverage your complementary strengths. Founders and investors bring different but highly complementary strengths to the table. Ask yourself how your skill set maps to the founders’, and pair their creativity and customer instincts with your operational expertise to unlock value. “The role of the investor is not to get in the way of a well-executing founder,” one PE investor explained to us, adding, “We should make their life as easy as possible. There’s nothing worse than investors who think they know better and destroy value.”

Making It Work

The three key challenges in founder-investor partnerships—cultural tension, control-related dynamics, and long-term alignment—are not insurmountable. To remain in sync and overcome the challenges, founders and investors should regularly revisit questions like these:

• Are we complementing each other’s strengths effectively to drive growth?

• How can we better leverage our respective expertise to preserve focus and mitigate blind spots?

• Are shifts in governance compromising our core values?

• Are we aligned on exit strategy and timing?

• How is the founder’s role going to evolve, and what are our management team’s needs?

• What triggers might cause friction between us, and how can we proactively mitigate them?

Using these questions, founders and investors can turn potential points of friction into opportunities for growth. The key is to focus—deliberately and throughout the deal cycle—on understanding and respecting each other’s unique strengths, building trust, and establishing shared goals. Doing so will create a partnership that enables agile problem-solving and unlocks extraordinary value.

Copyright 2025 Harvard Business School Publishing Corporation. Distributed by The New York Times Syndicate.

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