Growth Equity Investment Process
For the growth equityinvestors here how does your investment process run? And specifically, when you underwrite a deal what is the targeted MOIC? Is it 2.5x to 3x like I see on the buyout side? Is it higher than that depending on the stage (Series C or D vs pre-IPO)?
Also, does it differ by type of growth equity fund? I.e. Sequoia's growth fund that is investing in late stage Unicorns will have a different return profile than a TA or Summit that is sourcing a vertical software winner in flyover country?
Appreciate the help!
Comments (12)
Yes. It's a spectrum from venture underwriting toPEunderwriting. On one hand you have firms that underwrite the return the fund case for every investment (e.g., Seed investing only makes sense if you can envision the company as a massive winner). On the other hand you have guys like the major techPELBOfirms who underwritehigh teensIRR. It's shades of gray in the middle. Series B-D guys still have to underwrite an MoM and that will look different depending on their stage. TA guys probably underwrite 25%+ in classic growthyLBOfashion.
Sorry if naive but I've never heard "underwrite" used in growth context. Can you explain?
It just means what threshold of returns you're looking for. For example, an investment may only make sense if the team can see it being a 2.5x
Bump
My fund mostly looks for 2.5-3x MoM over a 5yr horizon. But beyond the returns funds are willing to underwrite, look at what risks they are underwriting- is it product, expansion in existing countries, intl expansion, new product launches, upsell/cross sell. That's what is quite important in the investment style and where some funds differ rather than arguing over 50bps ofIRR.
我们承担4.0 x MOIC基本情况。我们so have a very hard time deploying capital in this market :)
Thanks for the color - I can only imagine it's challenging to deploy right now while penciling 4x in a base case. What type of growth investments are you looking at - Vc late stage unicorns or Summit / TA / AKKR type of stuff?
hybrid fund...so late stageVC/ growth buyouts (GA type model)
Got it - related to the investment process how have you seen MIPs for mgmt structured on growth buyout deals? I have experience on the tech buyouts side so I wonder is it similar - ie 10% MIP, partial time and partial performance based vesting? What typical % does your firm give CEO andCFO?
我工作的g on my own investing initiative now where the deal dynamic are growth equity / buyout. Happy to DM if you prefer.
Spend more of my time on the minority growth side than buyout. But, I don't think we adhere to a "rule of thumb" approach regarding MIP. At the end of the day, we care about management alignment post-transaction, which can come in the form of significant earn-outs,seller financingamounts, MIP, or rollover equity. Sorry if that's not very helpful.
Ut voluptas sit et voluptatem molestiae ex deleniti nihil. Odio sapiente aliquam eaque id nihil odio culpa. Molestiae illum facilis ab blanditiis. Est et odio nesciunt. Occaecati eligendi ipsam dolores in quos. Rerum ad in rem quia quos et id.
Quidem totam fugit et rerum quae. At et vel itaque. Eveniet voluptatem quas qui. Culpa molestias ea maiores molestiae est dolorem vitae. Dolore laborum ipsam provident fuga. Enim rerum vel enim.
Et atque dolores dicta enim. Aut et sunt ipsa eius ea itaque harum eaque. Enim est quam officia tenetur aut aut fugiat. Aperiam excepturi fugit labore recusandae soluta eum. Non veniam ipsa nulla architecto voluptas sit tempore.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus:6 financial modeling lessons free($199 value)
orUnlockwith your social account...