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Palo Alto, California, United States
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Daniel Fetner
Here’s a question investors are often asked: When evaluating early stage companies, how much time do you spend on due diligence around future exits? It’s not surprising we hear this question a lot. Also not surprising: it’s got a wide range of answers depending on the firm. Some don’t spend much time here at all. Others make it a point to put meaningful time in as part of their process. Our current thinking: take the time to do the work on public market comps. At Alpaca VC, we spend significant time understanding how public market investors will realistically value a business based on margin profile, product, business model & TAM. In short, we want to know: how will this company be valued at scale when we get taken out? Yes, we can acknowledge that the journey toward exit is a windy road and that there may be pivots along the way, but there are still public market companies that have a business model similar to the early stage company you're evaluating. And you can always look at gross profit multiples if you think the margin profile will change over time. So we still do the work on the comps. Quantitative metrics we look at when making the comparison to public market comps include EBITDA multiple, revenue multiple, Gross Profit multiple or all of the above. As part of this process, it’s also important to factor in the public market company’s year-over-year revenue growth as this will also significantly impact the multiple it trades at. Simple example: if you have two public market companies with similar business models and similar margin profiles, but one's growing 100% year over year, and one's growing 50% year over year, then obviously the DCF (discounted cash flow) analysis is going to spit out a very different valuation for the one that's growing faster. Why this matters: When you take all of that information into account as you evaluate an early stage business, you can begin to create a realistic picture of how this company will be valued in the public markets at exit - or how an acquirer will value the company for an acquisition. Strategic acquirers may, of course, pay a premium, but we won’t underwrite for that. This allows us, for example, to form conviction around valuation based on revenue and gross profit predictions. If we think they can do $100M of revenue five years from now, we use this diligence process to form a thesis about whether the characteristics above (product, margin, business model, etc.) will cause the company to be valued at $200M vs. $500M vs. $1B at exit. Curious how other early stage investors think about underwriting an exit and how much time they’re spending on public market comps even though these companies are in their infancy.
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Colin McGrady
Is A Crisis Looming in Private Equity: What Happens When the Economy Turns? This Bloomberg article portrays the private equity (PE) industry as teetering on the brink, grappling with few exit opportunities, but buries the lead in my opinion. While it understandably highlights the debt layering PE funds are engaging in -- fund-level NAV loans, company-level PIK loans, and floating debt loans -- much of the article is dedicated to worry that regulators aren't getting the full picture. Meanwhile, it glosses over some really disturbing quotes. First of all, there is a throw-away line that multiples for companies with junk debt have been cut in half. Well, if that's the case, I can tell the regulators what the equity value is for free. This should be the article; broadly speaking, how much have multiples come in, and if you run that through the average debt ratio of private equity overall each vintage year, what does that look like for equity? How much 'operational improvement' does the sponsor need to deliver to get back to even? Then there's a calming quote from Mattis Poetter, "PE firms have gone through very tough environments...they're quite good at managing difficult periods." I agree, firms with capital have weathered past economic downturns well. But the economy is allegedly strong. What if, in this weakened state, a PE industry with layered leverage faces an actual economic downturn? I don't need to fire up Excel to conclude leverage on leverage on assets purchased at peak valuations is problematic in a downturn. Key Questions to Consider: • How will PE firms manage the mountain of distressed debt if economic conditions worsen? • What are the potential systemic risks to a PE collapse? (I'm thinking of pensions here) • Can the PE industry return to its 'roots' of operational improvement to navigate this crisis? (And let's be honest, we could have a whole discussion around if those really are the roots) #PrivateEquity #EconomicDownturn #InvestmentRisk #MarketAnalysis #FinancialCrisis #OperationalExcellence
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James Heath
🔎 A graph every VC manager should be following right now. PE's exit to investment ratio has hit a ten year low Most LPs invest a multiple of their VC allocation in PE. The less liquidity coming from larger buckets, the less divestments that can be made into the asset class 🔮 Similarly if this starts picking up, the allocation doors could start to re-open... #VC #venturecapital
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David Johnson
Too many small and mid-sized businesses struggle with capital constraints out of fear and misunderstanding. Sourcing the capital required to remove those constraints is key to unlocking the value creation potential of these companies. https://lnkd.in/gRYTKEmN #smallbusiness #businesstransformation
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Henry D. Wolfe
Boards of Directors – How Relevant To The Business Is The Board? In 2014, activist investor Starboard Value successfully replaced all 12 directors on the board of Darden Restaurants. The following shows the Darden incumbent board at the time of Starboard's proxy fight, Starboard’s value creation plan initiatives, the Starboard director nominees and the before and after performance (revenue, EBITDA, EBITDA margin and stock price). Note especially the direct relevance of each Starboard nominee to the industry or some aspect of the value creation plan. How often do you see this level of relevance on public company boards?
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Stephen Gill
🌿 Exciting News: Microsoft and BTG Pactual Timberland Investment Group's Landmark Carbon Deal! 🌿 Microsoft has just announced a groundbreaking agreement with BTG Pactual's Timberland Investment Group (TIG) to purchase 8 million tons of carbon removal credits through 2043. This deal, the largest of its kind, highlights the immense potential and necessity for large-scale investment in nature-based solutions. Why This Matters: 1️⃣ Scaling Impact: This partnership is a game-changer, demonstrating how significant corporate commitments can drive large-scale environmental restoration. TIG's $1 billion strategy will focus on conserving and restoring 330,000 acres of natural forests and planting millions of trees on another 330,000 acres of degraded land in Latin America. 2️⃣ Corporate Leadership: Microsoft is leading by example, integrating high-quality carbon removal credits into its broader strategy to become carbon negative by 2030. This move sets a precedent for other corporations to follow, showcasing the importance of private sector investment in achieving global climate goals. 3️⃣ Biodiversity and Community Benefits: Beyond carbon sequestration, this initiative will improve biodiversity, protect ecosystems like the Cerrado in Brazil, and support local communities. Projects like these are essential for building climate resilience and sustainable development. 4️⃣ Market Transformation: Deals of this magnitude signal a robust demand for carbon credits, encouraging more investment and innovation in the carbon markets. As Gerrity Lansing from TIG stated, institutional investors play a critical role in scaling nature-based solutions that are vital for climate and biodiversity. Why It’s Exciting for Investors and Buyers: 👉 High-Quality Credits: A great signal that increasingly stringent standards and scientific verification can provide confidence to use such credits at scale to make reliable impact. 👉 Financial and Environmental Returns: Aligning investment portfolios with sustainability goals not only mitigates risks, but can also generate attractive structured financial returns for investors. This collaboration between Microsoft and TIG is a significant step towards a sustainable future. At Terra Natural Capital, we’re thrilled to see such leadership and are committed to supporting similar high-impact projects. Terra Natural Capital helps corporates scale their carbon impact with strategic financing solutions. Our innovative financing model supports high-quality carbon projects from implementation into revenue generation. Get in touch and discover how we can help you secure your carbon credit supply and drive meaningful impact.
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Ryan Peddycord
Bloomberg recently spotlighted the risky practices that some PE firms are engaging in, like over-lending and NAV financing, which can mask underlying financial instabilities. You all know how I feel about this. At Tide Rock, we firmly believe that real value comes from operational excellence and sustainable growth, not financial engineering. Our strategy is rooted in investing to ensure that our portfolio companies achieve tangible results through disciplined and effective management. It doesn’t make sense to me how many financial engineers and analysts PE firms hire who have never run a company. They spend their time on what they are comfortable with—financial manipulation��while we, as operators, dedicate our time to what we do best: growing businesses. This hands-on, operator-focused approach sets us apart and ensures that we deliver real, sustainable value to our investors. Our approach has consistently led to an average annual growth rate of 30+% across our portfolio companies. If you're looking for a partner who prioritizes true operational excellence over financial gimmicks, reach out and find out more about how we work. #UnleveredBuyout
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Peter Martenson
With the proverbial “alignment” or “what’s your skin in the game” question during fundraising, equity contributions from buyout firms into new funds has jumped to an average of 5% from 2% last year, and in some cases as much as 20%. It’s leaving some managers scrambling to find significant amounts of capital in often short time frames. The biggest backers of buyout firms are wielding their ever-growing bargaining power to drive increasingly tough deals. The latest in a string of investor demands is this: If you want our money, put more of yours in first. As a result, some private equity executives — at both big and small firms — are loading up on more debt and pledging personal assets to appease them. This includes their homes and other valuables as well as traditional collateral such as fees and stakes in other funds. To raise cash, some are taking out high-interest loans that can charge rates into the mid-to-high teens, and are often backed by holiday homes, cars, second businesses and art collections, the people said. Some banks are demanding that executives pledge the bulk, if not all of their personal assets! #privateequity #privatecredit #privatedebt #privatecapital #pe #vc #growthequity #institutionalinvestor #limitedpartner #sponsor #alignment
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Teppei Tsutsui
Our view on the current venture capital markets. Curious to hear other investors' thoughts but I feel like seed stage valuation, at least in the gaming and entertainment sectors, has finally come down to the pre-covid level. Since February or March this year, we started seeing that the founders are willing to raise a $1-2m seed round at a $10m-ish valuation, not like $4-5m at $20-25m in 2022 and 2023. What are you guys seeing?
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JT Benton
I’m a strong believer in the idea that leading is largely about building empathy. The job isn’t just helping others understand the mission - it’s helping them complete the mission and building alignment through personal context. To take it a step further, you can’t be empathetic if you aren’t curious. Curiosity drives us to ask deeper questions - those questions build empathy and, then, we become more aligned.
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Alex Pattis
Want to be a Venture Capital Scout? Scout for Syndicate leads. I’m biased, but I think SPV/Syndicate leads are some of the best connections for VC scouts. As a syndicate lead, I’ve leaned into working with VC scouts the past 3-4 years. It's been a great way to gain unique access to deal flow and many of my most exciting portfolio companies have come from various “scouts”. Given the deal by deal investing strategy and ability to share carry with those who support sourcing & diligence, it’s become increasingly common for syndicate leads to actively partner with scouts and share carry or upside in the SPV. What’s in it for the scout? Deal x deal carry. While there are multiple traditional VC scout models that exist, the syndicate scout model is pretty straightforward. If you source a deal and support diligence, the syndicate lead is going to share some of the carry with the scout, and likely a more meaningful amount than a traditional venture fund. This is of course an SPV, so you are getting carry for the specific deal you sourced and not fund-level carry. A little more background on why the SPV model aligns with VC scout deal sourcing… Syndicate leads are structured (and many times set up) to invest in more companies than a traditional venture fund. In order to consistently bring LPs high quality deals, it makes sense to partner with folks in your network who have strong deal flow. Most times the carry split from syndicates will be more generous than that of a traditional venture fund. Syndicates do not necessarily have a certain number of portfolio companies they can invest in, meaning as long as they are getting access to quality deals that LPs want to participate in, then they will: 1) Be more likely to say yes and run the SPV into that investment and 2) Be more willing to provide a higher carry split, especially if you as a scout show you can repeat this with more future access In summary, if you are going to scout for venture funds, you might as well explore doing so with syndicates and capitalize on deal by deal carry/upside. Disclaimer: If you are scouting deals because you want to get into VC, working with traditional VCs is likely better from a networking standpoint, but if you are scouting to capitalize on carried interest/upside, I think the SPV lead route can be more attractive, and more frequently. -- Interested to see if you are a fit for our new Deal Sheet accredited investor product? Explore Deal Sheet to access 100-200+ of the best SPV startup (pre-seed to pre-IPO) investment opportunities per year. Deals are curated by Zachary Ginsburg & Alex Pattis (deployed > $200M across 750+ SPVs) across 50+ syndicate leads.
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Colin McGrady
Here's a piece from Fortune (behind a paywall) on the use of secondary transactions by VC firms. Mark Suster from Upfront Ventures notes the secondary market is emerging as a critical tool for VC's, and that VC's might need to emulate their PE peers in the use of GP-led transactions. I agree this will become more common, and in some ways, VC use of secondary transactions is a more natural fit. VC funds don’t need to maintain controlling interest, so selling partial stakes is easier. Conversely, it’s also easier for a VC firm to buy a minority stake. If exits remain muted, the need for a secondary solution will undoubtedly increase. Venture capital firms often hold anti-dilution rights during fundraises, yet many dated funds lack the capital to exercise those rights. Worse, in some situations, ‘pay to play’ rounds can threaten to zero out investments made in funds without additional investment capital. Secondary transactions offer a viable solution, allowing firms to manage their portfolios effectively, harvest value and mitigate risk. The issue has always been pricing. Secondary funds have always had much more comfort with the valuation methodology (rooted in financial performance) of private equity portfolio companies, than the valuation 'art' of venture capital. Perhaps more VC funds entering as buyers or partnering with secondary funds is the answer? #VentureCapital #SecondaryMarkets #InvestmentStrategy #Liquidity #PrivateEquity #GPLedSecondary https://lnkd.in/gM3bzTdv
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Josep Oriol
Mark Carney OpEd: We must stop prevaricating and expand carbon markets. I would add one critical point: Enough with the self-flagellation. Plenty of reason to be optimistic, and there is a lot of work to do! ✅️We have the ICVCM. We have strong science-backed standards. ❌️We allow tabloid journalists (often financed by oil nations) to spread misinformation. They tout "academic articles" attacking carbon, but do not retract even after articles are proven flawed by science. ❌️We have big NGO executives with 7 figure packages pontificating about more 'equitable distribution'. We have corporate executives with 8 figure salaries finding excuses in those articles to delay fair pricing (imagine the benefits for communities at $50/ton?). ❌️We have Verra (and others) pandering to eco-radicals whose only objective is to derail carbon. You will never appease a fanatic - they do not want 'better carbon markets', they do not believe in markets - they believe in taxes and prohibitions. ❌️We have nationalistic USA and EU politicians opposing nature based credits (e.g. REDD) in compliance markets. Why? Because money would flow from rich countries to poor countries via private sector, without voter protectionism. Without ability to use them in foreign policy. ❌️We have newcomers, particularly some 'rating agencies' using the old Silicon Valley trick of telling VCs: "This market is broken, but we are going to fix it". Obvious trick. Nothing is broken, Sherlock - except, perhaps, your morals. ✅️Nature Based Solutions like REDD are MILES AHEAD of any industry in nature when it comes to impact. Find a business operating in remote, rural areas that is better. Logging? Agriculture? Tourism? We invest in some of these sectors, and I can tell you that the best actors in those are miles behind a half-decent REDD developer. 🤷♀️There are bad events, as in ANY market. The Financial Times will show 500 audit scandals a year across all industries. And in carbon there will be errors, and bad actors. This does not make the carbon markets any worse than healthcare or education, where these things happen too. 📊Keep high standards. Ensure auditors work. But stop double-guessing the industry's own process. If Barclays has a case of bad accounting,or misconduct in UK, the central bank will not close all their branches - even if they are guilty. They will be fined, they will be forced to improve processes. But they will not be brought to bankrupcy. Why are we more unforgiving with an industry that is inherently more beneficial for the planet than transport, fashion, chemicals, etc? Have we gone mad? ⚡️In all this debate, I can understand (although I despise) the self-serving interests of polluters. But not the number of ideology-fuelled 'naive people' who are being played to keep the status quo. 🔥 The market will be massive, but we have no time to waste.Time to wake up. Time to get going.
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Dennis Hinton
Unlike most private equity firms that are "operationally focused" - we take a different approach: Since we look to back A+ owner / operators, we typically do not get involved in day to day operational decisions. We prefer to be an asset to the business owner on high level strategic decisions including: financing decisions, tuck-in acquisitions, growth initiatives, when to sell 100%, etc.
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Kevin Teng
🌍💡 Embracing Interoperability: The Evolution of Carbon Markets 💡🌍 The landscape of carbon markets is rapidly evolving, with a significant shift towards fungibility and interoperability. What does this mean? We (at the SoHo Global Climate Fund) spoke with leading climate fund manager, Charles Bedford of Carbon Growth Partners, to shed light on this important trend in the carbon markets. It's about creating seamless connections between compliance and voluntary markets, allowing for the exchange and recognition of carbon credits across borders and sectors. This trend marks a pivotal moment in our collective efforts towards combating climate change. By enabling carbon credits to be fungible and interoperable, we're fostering a more efficient and scalable approach to carbon pricing and emissions reduction strategies. Companies and organizations now have greater flexibility to participate in markets that align with their goals. #CarbonMarkets #ClimateAction #Fungibility #Interoperability #Sustainability #Innovation #GlobalImpact
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Neal Ghosh
Like other venture building groups, at 9point8 Collective we have our own methods of evaluating and screening for great leaders. Empathy is pretty high on the list, but maybe not for the reasons you might think. - Successful companies deliver for their customers. As a leader, it is hard to understand your customers -- who will almost certainly have an entirely different reality and worldview than you -- without empathy. When was the last time you saw a product launch and thought "wow I don't really get it but I can see how THEY would love it." It happens a lot. - Successful companies have loyal and capable employees. What drives a capable employee to eschew potentially more lucrative offers elsewhere? For most, it starts with being heard, appreciated, and valued. Again, empathy goes a long way here. - Empathy breeds humility. If someone fundamentally does not appreciate the perspective of others, how likely are they to truly test their own assumptions and seek out new perspectives? Hubris creates blind spots and blind spots create inefficiencies, then limitations, then weaknesses. Empathy is not the end all be all, but it's a simple and effective mechanism to learn, course-correct, and build momentum. #venturebuilding
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Zorian Rotenberg
PE Firm Differentiation - how LPs think about firms, funds & investors I saw a great insight on Twitter from Ho Nam which relates broadly to any investment firm including PE, hedge funds, etc.: Ho Nam posted: "Everyone sounds the same... the [Investors / GP] don’t see it themselves. But if you ask any LP which meets hundreds of managers a year, they will confirm. It’s hard to stand out from the crowd. [Investors / GPs] must think deeply about how to be different. It’s not just a pitch - to truly *be* different, you have to commit to a continual process that takes you down a different path." P.S. There are 8,000+ active global PE firms and only a couple of effective strategies to differentiate - some of them seem simple but are not easy. Example - GTM Edge, deep hands-on expertise in scaling sales & revenue growth. Seemingly simple for any PE fund, but not easy and far more nuanced than what meets the eye. --------- #pe #privateequity #lp #differentiation #business
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Anibal Wadih
Sharing views of my Partner. "Within the climate change investment ecosystem, much of the capital has gone to two ends of the spectrum: venture capital and infrastructure. Those investments are obviously impactful, but more of a developmental, long-term approach to solving climate change. We try to focus on where we can make an impact today. That means looking for companies already reducing emissions or saving energy." Read more from Stuart Barkoff, co-founder and managing partner GEF Capital Partners https://lnkd.in/dX2CMs35
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