05 PRIVATE EQUITY | BDO LLP
PE: ONE-SIZE-FITS- ALL OR ENDLESS POSSIBILITIES?
There is a belief among many tech founders that PE is ‘one-size-fits-all’. That PE investors are only interested in big businesses and they like to take a majority stake. This misconception means that management and founders often discount PE as a viable option when thinking about funding and future plans.
The truth is that PE investors come in all shapes and sizes. They have the firepower and appetite to do all kinds of deals with all kinds of potential portfolio companies. They also have unique personalities and approaches to working with tech businesses to achieve their goals.
Scale-up – where venture capital or smaller PE funds invest in smaller businesses who need capital and expertise to grow further. The funds are typically used to build more substantial business infrastructure such as growing the sales team and developing international markets. Buy out – where PE funds invest in larger, mature businesses. The investment helps facilitate a change of ownership such as a management buyout (MBO). This allows the existing management team, who perhaps have no or little equity ownership, to buy into the business alongside a PE house.
PE INVESTMENT SEGMENTS YOU MIGHT FIND IT HELPFUL TO THINK OF THE INVESTMENT MARKET SEGMENTS AS FALLING INTO FOLLOWING BROAD CATEGORIES:
Start-up – where venture funds look to back a concept or idea. Often businesses are pre-profit and sometimes even pre-revenue! Funds are typically used to develop a product and build business infrastructure such as opening an office and recruiting staff.
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