Can someone with industry experience explain the growth equity market? My understanding is that TA, General Atlantic, etc, are among the top funds. Two questions:
1) What types of deals are those funds most commonly doing? GE is this amorphous asset class that goes all the way from growth-stage venture (Series B+) to minority investments in non-venture-backed companies, to buyouts/control transactions. Can someone explain the typical deal type, value, and financing structure of a TA/GA deal?
2) Other than TA and GA, which funds lead the space?
Let me start by saying both of these questions have been answered extensively on this forum, so I would encourage you to use the search function and browse prior posts.
I do think there is a meaningful difference between what I would call “growth buyouts” and classic growth equity (some firms do both types). Growth buyouts are EBITDA positive, use leverage, and for all practical purposes are LBOs with a higher growth rate. Classic growth equity is often EBITDA negative (or turns negative in first few years as company ramps up expenses) and is frequently a minority deal (with structure in the security). There are tons of variations and sometimes it is hard to bucket a deal, but I hope this helps. Really at the end of the day, it is a strong organic top-line growth rate that distinguishes this sub-sector from the broader grouping of private equity. In the growth buyout space, the top GE firms will sometimes compete with traditional PE firms for deals and will sometimes exit to PE firms as well. If you look at their websites of both of the firms you mentioned, they just call themselves private equity firms now even though they have a growth equity/VC heritage.
Thanks for this. I know the questions have been answered elsewhere, but never as clearly or fully as one might like. This was a really helpful explanation.
Also, might be helpful to understand how the work differs given that the only real difference is that growth buyout funds are looking at higher top-line growth. Are the companies more interesting? Is there still a heavy emphasis on sourcing, or are these all banked processes? I've read elsewhere that GE is lighter on the technical/quantitative modeling skillset, and heavier on sourcing/market-sizing/etc. Does that hold now that funds like TA are just doing buyouts? Or can you expect to be doing typical modeling/capital structure work if you work there, just like if you were working at a MF?
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