Venture Desktop’s Post

The Day of Reckoning for Private Equity

Good look at the rough future that faces Private Equity as an asset class from Ted Seides (who has a great podcast):

No set of companies across industries is more at risk than those owned by private equity firms. Leveraged buyouts – now euphemistically called private equity – have “leverage” in their name for a reason. That financial tool works both ways, magnifying returns in good times and punishing results for equity holders when the tide turns.

In addition to the leverage point mentioned in the piece, another thing many PE-backed companies have in common is that they are harmed by the pandemic induced dislocation in the economics of distance, especially relative to where Venture Capital dollars have been deployed.

While PE-backed restaurants have struggled, VC-backed delivery platforms have benefitted. And while PE-backed gyms remain shut down, VC-backed digital fitness companies have seen their growth take off. There are a number of other examples of this.

The rapid onset of the future makes me wonder if over the next few funding cycles we’ll see VC continue to grow or generally sustain while the Buyout segment of PE shrinks. If that does happen, it seems likely that the growth would come from traditional PE firms shifting deployment towards growth stage digital companies vs. new VC funds emerging. So, in effect, this would become a piece of the financial operationalization of Sand Hill Road discussed in this great piece from John Luttig that I’ve shared here before:

Goldman is a financial layer on top of corporate America, helping to fuel its growth. They offer services ranging from M&A advice, IPO underwriting, private equity, debt investing, prime brokerage, private wealth management, market making, and investment research.

As always, sharing high cadence/rough draft thoughts here so maybe off on all of this ____ The Day of Reckoning for Private Equity

Good look at the rough future that faces Private Equity as an asset class from Ted Seides (who has a great podcast):

No set of companies across industries is more at risk than those owned by private equity firms. Leveraged buyouts – now euphemistically called private equity – have “leverage” in their name for a reason. That financial tool works both ways, magnifying returns in good times and punishing results for equity holders when the tide turns.

In addition to the leverage point mentioned in the piece, another thing many PE-backed companies have in common is that they are harmed by the pandemic induced dislocation in the economics of distance, especially relative to where Venture Capital dollars have been deployed.

While PE-backed restaurants have struggled, VC-backed delivery platforms have benefitted. And while PE-backed gyms remain shut down, VC-backed digital fitness companies have seen their growth take off. There are a number of other examples of this.

The rapid onset of the future makes me wonder if over the next few funding cycles we'll see VC continue to grow or generally sustain while the Buyout segment of PE shrinks. If that does happen, it seems likely that the growth would come from traditional PE firms shifting deployment towards growth stage digital companies vs. new VC funds emerging. So, in effect, this would become a piece of the financial operationalization of Sand Hill Road discussed in this great piece from John Luttig that I've shared here before:

Goldman is a financial layer on top of corporate America, helping to fuel its growth. They offer services ranging from M&A advice, IPO underwriting, private equity, debt investing, prime brokerage, private wealth management, market making, and investment research.

As always, sharing high cadence/rough draft thoughts here so maybe off on all of this
By: via Venture Desktop