Protocol and Pitchbook partnered to do a comparison to see what’s happening in Private Equity and enterprise deals so far in 2021, and the data is a bit jaw-dropping:

  • Just in 1H’21, PE invested $20.4B in SaaS and enterprise deals — up 142% Year-over-Year!  That’s up from $13.2B in all of 2020.
  • The number of deals is also way up, from 126 in all of 2019 to 105 just in 1H’21.  It’s not just more money flowing into buying the biggest SaaS companies.  It’s also more deals overall.

Who’s writing these big checks in SaaS and enterprise?  Thoma Bravo, Vista, KKR, Insight, and more.

Now Private Equity isn’t some magic white knight.  They are looking for 3x+ returns when they buy out a SaaS company.  They are in it to win as well.

But selling to a PE firm has some interesting advantages for founders over an IPO or a tech acquisition:

  • You can often get a “second bite at the apple” and still IPO even if PE ‘buys’ you.  When a PE firm buys a later-stage startup, they often want to not just keep the CEO and founders, but let them cash out some — often 50% — and let the rest of their founders’ shares ride to a bigger outcome.  A great example of this is Gainsight.  Vista bought Gainsight for $1.1B, and Nick Mehta remains CEO and will guide them to a future IPO.  A common structure here is 50/50 — senior management that stays gets to sell half their stock now, but also gets to keep running things for a shot at an even bigger outcome (IPO or 3x+ sale down the road).  This can let you sort of have your cake and eat it too as a founder (at the cost of giving up some upside).
  • PE firms are also often OK if you don’t want to stay.  If Salesforce or Stripe buys you, they’ll often want you to stay 3 years.  But PE firms are also often flexible here if you just want to take a break.  They have a Rolodex of seasoned CEOs to take over if you’re ready to move on.
  • PE can move fast, with less conditions.  PE firms are aggressive and if they want to buy you, in whole or part, they can often move faster, with less conditions, than M&A from a tech company.  Apple or Google might have a ton of expectations from a big-dollar acquisition.  A PE firm, by contrast, just wants you to keep growing.  That’s about it.  And they can often do a deal in 30 days if they’ve been tracking you for a while.
  • PE firms can and do buy a wider variety of SaaS companies than big tech companies do.  PE firms will buy any strong player at $10m-$100m+ ARR with high net revenue retention.  But Adobe, Intuit, Salesforce, etc. are only interested in buying a specific subset of potential startups.

Selling to PE has its downsides as well.  It often leads to underinvestment (no matter what folks say) and consolidation of back-office functions.  It’s often not really yours anymore if one big PE fund owns 50%+ of the company.  And you’ll have a new boss.

But do it right, it can be a great option for many founders that didn’t even really exist a decade ago in SaaS.

Just having more options makes life better for founders.  Because it takes 7-10 years just to get anywhere really good in SaaS.  And it’s often the second decade when power laws really give you that boost.

More here:

The Rise of Private Equity in SaaS: A Gift to Founders


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