One last time about structures: which one is right for you?

I can finally exhale!

24 hours after our biggest ever networking event in London, I am back home in Zurich and doing “real” work. Among the 100+ people who showed up, I counted at least a dozen emerging serial acquirers. A good mix of tech / content (good ol’ VMS, VOIP, Youtube), services (senior living, fire protection), manufacturing, consumer, and education. 

With so many requests to assist with fundraising, feels like we should be setting up an aggregator fund, eh?

Until then I will keep building my war chest through consulting. If you need help with your rollup, hit reply, stating a) your idea, b) how I can help and c) your budget. 

Back to the event. I am sharing with you the slides from the keynote, which focused on structuring. 

The reason we have managed to get our hands on so many precedents in the first place is the sheer pace of fundraising activity. Truly wild. Software is hot. System integrators are hot (check out our piece on the Atlassian partner ecosystem). Content rollups are picking up big time - Youtube channels, ecommerce blogs etc. 

So many people are checking out of PE and VC to become searchers and holdco builders. This is not at all surprising. What is surprising is that Europe, with its dire macro, political and demographic predicaments, has all these growth focused PEs and VCs in the first place. 

There is no growth: stop chasing it. 

Focus on the REAL opportunity: buying sticky but neglected businesses from retiring owners and improving them. VMS and fire safety do well in a 10% growth environment but they also do well in a 2% growth environment. 

I won’t recap all the structures we are seeing in the market as we recently did a writeup on this very topic. High level, you have two options: the PE structure and the VC structure. 

Reasons why the VC structure may be right for you - and how to sell it to investors:

Personally, I prefer the PE structure because it minimises the friction between founders and investors when it comes down to dividing the spoils. 

With that said, if you decide on raising from a PE firm, you may have a hard time weaning them off a high (2-3x) hurdle rate. In the absence of a single, massive platform acquisition that derisks the whole thing, I find it hard to accept >1x hurdle rate with >10% PIK. 

Unlike Arcadea’s founders though, I do not think that the phrase “PE backed permanent equity vehicle” is an oxymoron. I do think PE firms that want to succeed in this space need a mindset shift away from the buy & build blueprint. 

What if you are stuck? Check out family offices. They have the cash and patience. 

Just don’t sell yourself short 🙏