Growth Equity vs Mid/Large Cap PE

Question

Having done close to 25+ diligences at work now, it seems like growth equity investors spend less time mucking around in inane, completely trivial minutiae of a deal?

It seems like you can develop conviction around a growth equity investment with much less endless sensitizing - in general, you have a better understanding upfront if there's something that will kill the deal or let you pay a turn higher. Whereas a mature co. will have skeletons in the closet you need to really dig around for.

Am I thinking about this the right way? What are the cons on the growth side?

PE-biz-dev · Accepted Answer

In the early side of the growth game myself, but in general the businesses themselves are less complex (e.g. you don't have many legacy units or small things that were acquired and put on the shelf) which does reduce the time of DD.

The scope of market diligence changes a bit too... in a mature industry (e.g. manufacturing some auto component), you would need to have airtight conviction around trends in auto sales, where competitors are moving, dynamics with each of your key customers, etc. You will touch all of this in growth, but often a product is such a greenfield (e.g.

The Pharma Guy · Answer

Coming from a decent amount of CDDs my experience has been that when trying to make something established a bit more efficient, every tiny detail counts. This adds tonnes of time and effort to the DD. In cases of growth, if the core offering of the company makes commercial sense, the specific of the other minute details should not be such as huge issue and can be worked out later. That's why in my experience, when a core offering does not have potential, you're screwed.

perpetual intern · Answer

This is interesting. I am headed to mid/large cap PE soon and can't stand all the trivial minutiae. I understand that finding something tiny that kill one out of every X deals makes the effort worth it to not lose money that one time, but I am not detail oriented.

However, I do like the control element (I like that I have a strategic and operational background, and after some time in PE, I hope this will make me a useful investor and one who is perceptive beyond pure financial acumen).

Making Gravy · Answer

What you're describing as growth equity is more accurately thought of as growth private equity. Mature buyout positions that will grow a clip faster than something growing at GDP.

When the average Joe says growth equity, they mean late stage VC, whether that be Inisght, CVC Growth, or the GE arms of some traditional VC players now expanding into the space.

OP is referring to growth equity, not PE that happens to grow slightly faster.

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Growth Equity vs Mid/Large Cap PE

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