Thinking through tech investing: early growth vs. growth vs. buyout
Currently on the banking side covering tech, and I'm planning to move into tech investing long term. As recruiting ramps up this cycle, I'm trying to think through which category of investing makes sense for me long term.
As I see it there are three distinct buckets:
1. Early growth (Coatue, ICONIQ, GC, etc.) writing primary capital into high growth companies before profitability
2. Hybrid tier/Growth (TA, Advent, GA, etc.) that move fluidly between growth investing and buyout
3. Traditional buyout (TB, FP, SLP, Vista)
One thing that makes early growth interesting to me is that it's often the only way to invest in the future category leaders. By the time a company is profitable enough to be buyout viable, it's already too expensive, and the hybrid/buyout shops are priced out. Curious whether people think that dynamic is real or overstated?
Here's my actual question. Tech buyout has always been framed as the prestige default, but with multiple compression and fewer clean take-private setups, is that concept still there, or is it fading? Does the hybrid tier end up being the smarter long-term seat since those firms aren't forced to choose one lane? Is the early growth buzz short term or the only way to invest in the best companies? Will buyout shops rebound once hype fades like post .com especially since they have a ton of commitments now?
I also want to ask/push on something everyone repeats. The common line is that moving from growth to buyout is basically impossible, but moving from buyout to growth is fine. Is that actually still true?
In general, I'm curious if people are seeing shifts in how these firms are positioning themselves now of days? How are the TBs of the world changing their strategy?
bump, great Qs
bumping as well
Buyouts has several headwinds both structurally and practically in terms of the lagging nature of fundraising. Venture will continue do very well given power laws and the ultimate fact that there remain far more capital chasing top companies than the other way around. Actual early stage growth benefits from power laws, growth buyouts not as much. Opportunistic type firms has a ton of space to play across the spectrum, but those are rare and many are just practically PE shops.
I am not a tech buyout doomer and nobody can predict the future. However, given fundraising is a lagging indicator and the past funds for all tech funds are going to be bad, not a good near and medium term outlook. On the venture point, all the top private companies can basically access 10-20x of the capital they raise at the minimum, so firms with top reputations simply will always outperform the others. This has always been the case and is going to be more pronounced as there is more capital around than before.
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