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PE in VC in 22

In 2018 at Saastr, Jason Lemkin & I talked about non-public fairness changing into an more and more aggressive purchaser of venture-backed software program corporations.

Final 12 months, non-public fairness companies inhaled $29 billion {dollars}’ price of startups – a twenty-year document and 50% greater than the earlier peak.

The high-water mark underscored the significance of personal fairness sponsors as an exit avenue for startups in black Sharpie marker. In 2021, PE buyouts constituted greater than 20% of venture-backed M&A by {dollars}, doubling previously decade.


VC2PE transactions – startups purchased by PE funds – document median gross sales costs in step with strategic M&A – when corporations purchase startups. The newest surge however.

Who makes for essentially the most engaging VC2PE targets?

Personal fairness corporations usually goal SaaS/IaaS corporations at $20M in ARR or extra with good unit economics and development within the 10-30% per 12 months vary. Gross & internet greenback retention marks should impress, and internet earnings ought to hover near profitability.

PE funds goal companies whose backside traces would profit from improved inside operations. Most PE companies goal to extend a startup’s worth by squeezing extra juice from a Cara Cara orange somewhat than fertilizing the tree to make it develop. Usually, PE companies swap out administration workforce members to start out the juicing course of.

Additionally, VC2PE buyouts commerce at decrease single-digit ARR multiples (1-5x) in comparison with strategic M&A which has touched 20x or extra, relying on the general public market & public sale stress.

The software program & infrastructure youth of a decade in the past are ageing & rising into these income ranges. Document quantities of PE raised and sitting as dry powder able to be invested, similar to VC. Market multiples have compressed by 50-70%. Harvest season for a personal fairness investor.

The mixture means we’ve entered a market ripe for the selecting. Anticipate PE to squeeze document portions of pulpy orange juice within the subsequent few years.



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