Joining an exciting new Software Rollup over PE/ Growth Equity?
G'day fellow monkeys,
Curious to get people's opinions on my situation: (1) I currently have an offer from a PE/ growth equity fund; and (2) I just also got offered (with a better title) the opportunity to be a #1/ #2 investment team hire in an exciting new software roll-up opportunity (with extremely high calibre individuals).
(1) is the safer route: cruise in PE, have decent comp with (almost) guaranteed bonus; eventual carry, but handcuffed on timelines.
(2) is more risky, but the upside potential is unlimited. Base salary is also higher. The founding team have very ambitious plans (think $10bn+ valuation eventually). It would be more exciting (probably), and I'd be helping build from scratch with a (truly) tier 1 team.
With a view to eventually be an entrepreneur one day, (2) seems more logical. Assuming the equity package was sufficient, the upside is much larger than cruising in PE for the next 3-5Y. But then again, PE offers a stable role and potentially more flexibility with eventual exit opps.
What are people's thoughts on this? Anticipating 99% would say (1) given this forum but maybe I'll be pleasantly surprised. Thanks y'all
Something to keep in mind. I find that software rollups are a dime a dozen. It's really easy to show good economics on paper but given how saturated software investing is, unless there is some point of real differentiation, getting good assets will be uber competitive. Do your diligence on how they source etc.
Very fair point - thanks. I think this is particularly true in the US. In Europe, less so (which is where this will initially focus). The strategy/ focus is vertical (in a huge market) and they appear to (genuinely) have a first mover advantage (yes, actually [as far as I have been able to tell from research])
If they don’t know about Topicus they don’t know what they are doing.
Curious why the emphasis on sourcing? Everyone and their mother claims to have “proprietary deal flow” but is there really any edge here that can be exploited that isn’t by the 100s of shop in market doing this?
If in Europe go do the roll up for sure. Am in PE right now and would kill for an exit like this.
Very interesting. Why specifically?
Economics are shittier in PE in Europe, roll up space is less saturated than in the US. If you have people with a good sourcing thesis/engine than go execute for them and have real upside rather than at a random PE fund with a European waterfall that takes 10 years to pay carry on 1.5x gross performance because they had the misfortune of investing in Europe
Curious how you found the rollup opportunity.
What vertical is this? Depends a lot on what type of roll-up - there's tons happening that aren't integrated and where all they do is merge back office. Those end up falling apart eventually is my sense.
delete
Lmao I know which firm
Agreed. Those poorly integrated M&A rollups that are a hodge podge of somewhat related assets get heavily discounted in M&A processes these days. I think that play is probably going away for now.
I've worked in growth for the past 5 years and have gone pretty far on a few of these roll-up opportunities.
Based on what you said, the latter seems a bit more appealing to me if (and only if) you believe in the underlying thesis. If they're purely doing a multiple arbitrage math problem (i.e. we buy these things for 3x ARR and trade for 8x ARR), as people have said it's tougher to stand out and differentiate either to sellers or to the capital markets more broadly.
If there's something thematic -- i.e. there's a common strategy they're doing across assets (e.g. Fullsteam, which is Silver Lake + Aquiline, acquires businesses they can add payments to) or if they all serve a common end market and you're trying to create a unified toolsuite for a buyer (e.g. Tribute which was PSG => Vista and was a rollup for funeral home software) those have proven to be really interesting and valuable.
Finally, I'd gently push back on your comment on PE being better for stability + exit ops. On exit, it wouldn't be straightforward to go to PE from the roll-up, but if your goal is to eventually pursue entrepreneurship, being in an operating company will likely be much more multifaceted, to the extent you'll get exposure to the assets you acquire after a deal process. There are A LOT more seats for somebody who is a utility player / business athlete with M&A experience than there is for a pure M&A guy. Also keep in mind "cruising for 3-5 years" in the PE world isn't a given... if you aren't producing, you aren't going to get the VP bump, and even Senior Associate may not be guaranteed at your shop.
Thanks for the insights, very helpful.
As for your point on strategy - this is the most important and final thing I'm diving into so I can get full conviction on the thesis/ strategy. So far, it seems that it is moving far beyond a simple multiple arbitrage play, but there's some last confirmatory work to be done on this.
On exit ops: I 1000% agree that moving back into PE would be tough; but in entrepreneurship/ VC/ potentially growth (depending how well things go), this isn't such a long shot.
Need a bit more information to advise you:
- Do you have any investing / buyside experience already?
- Is your offer PE or growth equity and what size?
- How are you assessing whether the rollup team is tier 1? How much experience do they have, track record etc.
- As others have said, what is the strategy?
(1) 2.5Y of mid-market buyout experience
(2) PE/ growth hybrid shop w/ $250-500m AuM
(3) Lots of Tier 1+ (top 0.1%) experience (both investing and operating)
(4) Can't share too much beyond what is already in the thread
Take the PE firm and then switch over to the roll up in 1-2 years. Getting principal investing experience opens up a LOT of opportunities and unfortunately roll up experience isn’t viewed as being the same thing. I hated PE and left it after my associate years for corp dev, but it was absolutely invaluable and highly differentiated experience. Ex IB guys in corp dev / roll ups are a dime a dozen, but people with real PE experience are much more highly sought after.
I would agree here, though the upside potential on equity by then wouldn't be attractive vs. potential carried interest at a PE fund. Because I'll be first 5 FTE hire, the equity component is extremely attractive. It's basically all upside from joining, assuming the company doesn't die...
Yeah I guess... what I would recommend you keep in mind is that the "upside" in any private illiquid investment is usually pretty uncertain and will take literally years for it to come to fruition in the best case scenario. I would personally recommend you focus on picking the role where you can do the most skill building and credentialize yourself over chasing upside. There will always be opportunities like this in the future that you can easily find. PE backed roll up jobs are a dime a dozen candidly, especially if you have prior PE investing experience.
If you focus on making yourself as qualified, experienced, and credentialed of a candidate as possible, there will be a lot of very very interesting and attractive opportunities open to you in the future. The most highly qualified candidates are constantly being shown "once in a lifetime" opportunities.
Hey man, DM me when you get the chance - have been putting together a list of these software rollups and would love to trade notes.
What are responsibilities and how does comp work at these software platforms?
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