Are the lines blurring between VC and PE?

A few VC firms are exploring buyouts as a strategy.

🥇 Industry pioneers: Bessemer Venture Partners and Industry Ventures, traditionally focused on early-stage investments, are engaging in buyouts. BVP Forge raised $780M in 2022 to buy out software companies.

🛗 Exit option: buyouts are increasing as an exit option for VC-backed companies. From 2006-2011, buyouts accounted for less than 10% of exits but rose to 20% by 2018. VC-backed buyouts grew 46% YoY in 2021.

🤸‍♂️ Pragmatic approach: this trend is driven by the rise of SaaS companies, VC-backed companies staying private longer, available dry powder in the buyout ecosystem, and LPs’ desire for strategy diversification.

📈 Demand surge: with $85+B in unrealized value in decade-old venture funds (2022 Preqin), managers look for acquirers. The current funding conditions and emphasis on profitability over growth drive buyouts.

🎯 Smaller players: a few PE firms dominate tech buyouts for large deals. They’ve created a void smaller funds are filling. Emerging buyout managers can focus on smaller companies overlooked by larger PEs.

In short: there is a shift in the investment strategy of VC firms, with an increasing focus on buyouts, especially in technology. This trend is driven by market dynamics and the potential for value creation in this space.