📬 Too good for your own PE fund?

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If a role like this is in your hiring plan, the tool isn’t the productivity gain it was sold as.

The question that would have caught it: “What roles are typically needed to operate and maintain this after go-live?”

It’s one of 10 in Nominal’s Close Readiness Checklist, which lays out the exact wording to put to a vendor (and what a good answer sounds like). 

👉🏼 Stuck on a problem and need some advice? Send me your questions, and you might just see yourself in next week’s Mailbag. Submit anonymously using the button below:

Here’s what’s on today:

Now, let’s get into it.

Anon CEO from UK

I am a first-time founder CEO with a PE-backed physical infrastructure business. A few years in, numerous large funds are courting us. Our current fund is reluctant to sell up after around three years. However, they lack the funding to take us to the next level (smaller PE with middling fundraising in the latest fund).

My workings suggest current valuations from incoming funds would provide exiting investor with circa 2.5x MOIC and a 40-50% IRR (expect to get chipped down a bit but we are in a sellers’ market right now), albeit we haven’t been able to deploy all their capital quite yet.

How do I approach these discussions?

Congratulations on your success. You sir / madam are a BOSS.

A 40%+ IRR is a marvelous return for any fund. However, given your phrasing, I assume your sponsor has rights that block you from raising capital without them. That might be board control, reserved matters, consent rights over new equity or debt, pre-emption rights, transfer restrictions, or maybe just enough influence to make life difficult.

If they do not want to sell, it is probably because they do not want the capital back yet.

In a way, you may be a victim of your own success. You got there too fast. They may still be in deployment mode in their fund life cycle, not harvest mode. A 2.5x MOIC and 40% to 50% IRR looks great, but if they take the money now, they may have the awkward problem of needing to redeploy it into a weaker market. Classic PE… even making money for them can be inconvenient.

So first, work out whether this is a fund-level issue or an asset-level issue.

Fund-level means they like the return, but the timing is awkward. They do not want liquidity yet, or they want to show more unrealized value in the fund.

Asset-level means they think there is more growth to come, and they do not want to sell before the bigger value inflection.

Those are different objections and I think they will change your approach.

So … what to do.

Show them that doing nothing is not a neutral option for you or them. If the business needs more capital to operate at the frontier, then underfunding the next stage puts the current return at risk. Show them two cases: the constrained capital plan with the current fund, and the fully funded plan with a larger capital partner. The long-range planning cycle is the ideal moment to surface this, but if that’s not convenient, don’t wait… do it anyway.

Make the point that the 40% IRR is at risk without the right cap structure for the next stage. They may get more MOIC by waiting, but the IRR can decay quickly, and the risk profile can worsen. Competition, execution risk, market timing, infrastructure bottlenecks, and missed liquidity windows.

Then give them a way to stay in the story without blocking the next chapter.

This does not need to be a binary sell-or-hold decision. They could sell part of their stake as a secondary, return some capital, create a credible mark for the fund, and roll a meaningful position alongside a larger sponsor.

If serious larger funds are circling, they will understand this problem. They may be willing to structure around it because they want the asset, and they know your current investor may need a face-saving and fund-friendly path through.

That could be a majority recap, minority growth round, partial secondary, continuation-style structure, or staged sell-down. Who cares what you call it if the business gets the capital it needs, the current fund gets some liquidity or validation, and you avoid a growth trap.

This sounds solvable because everyone is making money.

Frame this as: “You’ve been a wonderful capital partner, and I want to continue our journey through the next stage. But we need to fund this stage properly, and we should explore structures that let everyone win.”

And yes, I would strongly consider getting a good investment banker involved. A sector specialist who knows the large funds circling your space, can run a controlled conversation, and can help design structures that solve the current sponsor’s constraints without killing momentum.

TLDR: Don’t force a sale debate. Show the cost of underfunding growth, then structure a partial exit or rollover.

Chris from Manchester, UK 

Hi Secret CFO,

Long time reader, first time question submitter.

Appreciate this is another costing question, however your answer to a previous question about frequency of cost updates has got me scratching my head - specifically that any changes to standards should be as infrequent as possible.

I work for a manufacturing business for which copper is the primary input. Over the past 12 months copper prices have increased by 50% or so, which has put massive pressure on margins. Month to month sees big swings in the input price.

We operate a standard costing system and currently update our copper material cost every month given the extreme volatility in pricing. Although this isn't strictly best practice for variance calcs etc., the alternative is having massive discrepancies in inventory valuation that cause other margin swings that ultimately make a mockery of any review and insight.

Would love to hear your view on whether there is a better way to nail down our approach to costing to retain some of the benefits of traditional standard costing?

OK Chris, you win.

One more costing question.

If you have one volatile commodity driving aggressive swings in cost, I think it becomes even more important to keep your costing rolls disciplined.

Copper has been on a wild run, and while zooming out it has all been in one direction, there have been moments of corrections in there. That is a lot of noise for your costing models to absorb month after month, and crucially for your commercial teams to price correctly against.

So the danger is you end up constantly chasing the market price, and your standard costing system becomes actual costing with extra admin, and no one understands the real margin dynamics. When you zoom out, the reality is as you put it… there is huge copper on cost to recover through pricing, so keep that point front and center.

The challenge is not just the copper spot price either. There is the price you bought at, the timing of the buy, whether you are hedged, whether you have stock on hand, how quickly you consume that stock, and whether your customer pricing can move fast enough to recover the input cost. A gloriously complicated minefield, I’m getting chills down my spine (and a little PTSD) just thinking about it.

In a volatile market, one bad buying window can crush your competitiveness for months. In a low-margin manufacturing business, that is existential.

So the core question is this: how do you protect pricing and margin without turning your costing model into a constantly moving feast of chaos?

My instinct is that you should separate three things.

First, the standard cost.

At a point in time, you need a fixed copper price assumption in your standard cost. Maybe that resets annually. Maybe quarterly, if volatility is extreme and copper is genuinely the dominant input. 

You need the standard to stay useful as a reference point. If the reference point keeps moving, you lose the ability to understand mix, volume, usage, yield, efficiency, and purchasing variances properly.

Second, the copper price variance.

As the actual copper costs move away from the standard, capture that cleanly as a purchase price variance, or a commodity price variance if you want to split it out more clearly. But do not bury it. Make it visible.

That variance is telling you something important: the economic impact of copper volatility versus the cost base you planned around.

Then split it further if needed. Market movement. Purchase timing. Hedging effect. Supplier variance. FX. Stock timing. Those are different things, and they should not all get thrown into one “materials price variance” bucket like a dead animal in a hedge.

Third, pricing.

Do not confuse pricing with costing.

It sounds to me like you need more dynamism in your pricing model, not necessarily more frequent changes to your standard cost.

If copper moves by £X per tonne, what does that mean for unit economics? What price movement do you need by product, customer, or contract? Build a simple ready reckoner the commercial team understands.

In businesses exposed to volatile input costs, it is common to use surcharge mechanisms during volatile periods.. It can be faster and cleaner than changing base price every month. Customers understand it better too, because it feels linked to an external commodity movement rather than you just pushing price.

It also moves the conversation away from individual product-level arguments. If you try to recover commodity inflation one product at a time, you can get dragged into endless debates about price points, SKU economics, historic margin, and customer exceptions.

A surcharge keeps the focus on the bigger bill: copper has moved, the cost base has moved, and margin needs protecting.

That makes it a key margin protection tool, not just a pricing tactic.

Oil-linked surcharges work this way in lots of industries. I am a shareholder in a private chemicals distribution business (long story) and that is exactly how they handled supplier price increases once the oil price kicked on earlier this year. Suppliers passed through oil-related increases as a transparent surcharge, and the business then passed that through to customers on a per kg basis.

Later, as the market settles, the surcharge could either drop out or get crystallized into base pricing in a controlled way.

This works well when you have one dominant commodity driving breakout inflation.

You might have a base copper assumption inside standard cost, then a copper surcharge mechanism linked to an agreed index or reference price. The surcharge protects margin without needing to rebuild the whole cost model every month.

The inventory valuation point you raise is real. If the difference between standard and actual copper cost is so large that inventory valuation and reported margin become a mess, you need to handle that properly. But that’s an accounting/reporting problem, which is important… but can be handled with central adjustments and is much less important than the commercial problem.

Commodity exposure needs commercial, procurement, finance, and treasury joined up around one model. Not finance trying to make the cost roll absorb all the pain.

TLDR: Don’t chase copper monthly through standards. Hold the reference point, isolate the variance, and recover it through dynamic pricing.

Hoop Dreams from US 

Why didn't you ever become a CEO? You have the strategic chops and understand the levers of business as well as anyone.

Thanks Hoop Dreams.

It’s an interesting question, and one I have thought a lot about at different points in my career.

There were moments where I could have moved more deliberately toward general management. I did some of that in practice. I had some very operational CFO roles, ran or supported plenty of non-finance functions, and in my last role I deputized for the CEO often enough to get a good feel for the true shape of the job.

The truth is, in the kind of large established businesses I grew up in, I’m not sure CEO would have felt different enough.

That is not meant disrespectfully. The CEO role is obviously bigger, lonelier, and more accountable. But in those businesses, the work is still often about managing constraints: capital, people, politics, legacy systems, shareholders, customers, debt, and bandwidth.

As CFO, I already got a lot of that intellectual puzzle. I enjoyed helping work out how to move the business forward despite the constraints.

If I wanted a truly different game, I think what I really wanted was not CEO. It was founder.

Building a product, brand, and customer experience from scratch. Something people choose, love, and would miss if it disappeared.

And I’m now getting more of that from building this platform than I ever could have hoped for from anything else.

TLDR: Yes, but in big companies the CEO role and CFO role often isn’t that different.

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My word, being a CFO of a legacy automotive giant must be incredibly tough. huge CapEx and R&D requirements, thin margins, and a crushing innovators dilemma problem…

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Disclaimer: I am not your accountant, tax advisor, lawyer, CFO, director, or friend. Well, maybe I’m your friend, but I am not any of those other things. Everything I publish represents my opinions only, not advice. Running the finances for a company is serious business, and you should take the proper advice you need