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? (e.g., late stage growth, Insight, KKR Growth, etc.)
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. you're Classpass and your main competition is people calling front desks) that it's easier to count on where new sales come from.
The big con on the growth side is you're usually a minority investor and your ability to actually impact the business is limited... which gets more true the closer you get to IPO. While in a PE deal you could underwrite something by saying "we'll move this into this segment" or "we'll cut out this cost center," you can't count on that in a growth situation since you don't have a mechanism to force anything on the management team.
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). I wonder if the right place to go is a mature buyout shop like Insight - new companies, not necessarily mature software cash cows like Vista, but plenty of control positions?
What do you think?
I think it's a little tough to have it both ways. The fastest-growing companies usually aren't receptive to control deals (they know what they're worth, they have existing investors who want to ride it to an IPO, etc.). Insight and their peers do a mix of buyouts and minority growth deals, and your experience will likely vary depending on where you're staffed internally
Interested to hear your thoughts on exit opps of mid/large cap PE vs Growth? I have heard that mid/large cap PE enables you more easily to transition into HFs/ corporate roles?
On the growth front, you really need to just get the big picture items right: "product", "management", and "TAM." You do have to dive deeper into user economics/sales efficiency so its not all pie in the sky thinking, but the decision making process is less Excel driven if that is the right word.
Can we decide on a consensus definition of "Growth Equity"?
Because according to this: https://www.callan.com/growth-equity-late-stage-vc/ GE =/= Late Stage VC - which is what most of you here seem to be referencing (esp. with the emphasis on tech-specific language).
GE seems to be mature, traditional businesses that are growing slightly above average. Whilst Late Stage VC is just supporting startups that have now blossomed to pre-IPO scale. Thoughts on this distinction? Are Sequoia and Summit really in the same business?
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.
Not talking about buyouts at all.
I'm referring to minority equity investments into usually stable, mid-market companies growing faster than average with attractive acquisition or IPO prospects.
Think stable Business Services or Financial or Industrial businesses that might need a bit of a guiding hand with scaling their business. Significant non-control minority equity transactions that are structured more as "partnerships in unlocking growth potential" rather than "own, build up and flip".
That's what I've always assumed Growth Equity to be - not the later stage VC consortium mega-deals that we see hit the news all the time.
Two questions:
Which of these strategies has more long term potential? My own thinking is that with software, the sky's the limit, and the proverbial orange has been squeezed in vanilla LBO.
To anyone who went through a 2 year Associate program in LBO/Growth: which did you go through, and would you have picked the same, or differently, and why?
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