There’s an interesting trend in growth equity, according to Matt Bennett, a partner at Talisman Capital Partners. Large investors, such as Tiger Global and SoftBank, have adopted a high-velocity capital deployment strategy, which he says has created a unique environment.
“It's a really interesting dynamic, particularly for growth-oriented private businesses looking for capital, where it's almost less about the value-add capital and more about access and speed and limiting disruption to the business,” Bennett says.
The core revolves around the amount and velocity of capital, he says, with some groups closing a deal every two days, some of which are executed within 24 hours of getting financials, with the investors coming in sometimes 15 to 25 percent above the asking price.
“It's this really different game that's being played on the growth equity side of things where it's much more focused on velocity than deep due diligence or haggling over price,” Bennett says. “We've got partner companies that are seeking growth capital at various stages. And these folks are coming in writing multi-hundred-million-dollar checks, closing within X number of days. It's hard if you're competing against that but it really resonates with a lot of the companies out there where they have a fundraising cycle (that) can be unbelievably disruptive, time-consuming, and these groups are coming in with more velocity. As an asset manager, I think it's worked out quite well for them.”
Kumi Walker, chief of corporate development and strategy at Root, adds that an interesting element within this trend is that this capital is getting deployed whether the entrepreneur takes it or not.
“I know that there are tactics that investors are using where the 'stick' to get into a round is, ‘Take this money or we'll fund your competitor,’” Walker says.
It’s a pretty unusual time because typically checks of that size go toward businesses that have been around for years, are predictable and have five years of financials that facilitates a good due diligence process.
“The unusual part is you're seeing those checks go to companies that are series B, might not have more than two or three years of financials, and it’s really only happening just days after even connecting with the entrepreneur in real life,” Walker says. “So it's just a pretty unusual time for that amount of capital being deployed.”
Bennett and Walker, along with Tri-W Group Senior Analyst Paige McCarthy and Ice Miller LLP Partner Chris Michael, spoke at the recent Columbus Smart Business Dealmakers Conference about new and emerging perspectives in M&A. Hit play on the video above to catch the full panel discussion.
