Private Equity Has A Golden Opportunity to Tap VC-to-PE Buyouts

Now that one in five venture capital exits goes to private equity, the industry has a golden chance to tap the ballooning VC-to-PE deal pipeline for exclusive referrals .

By October of last year, private equity sealed more than 800 deals from this emerging channel, representing nearly $50 billion in deal volume. Thanks to an abundance of venture dollars helping companies stay private longer and mature along the way, the average ticket size for these deals is now around $60 million, well within a large segment of the PE industry’s sweet spot.

The challenge for private equity is how to capture these deal opportunities in sustainable fashion, instead of relying on networking luck or chance. GPs have done a good job at this when it comes to extracting gems from intermediaries, applying marketing concepts like lead scoring to identify which bankers have offered the most value over time, and staying in front of those bankers for the next opportunity.

But nurturing relationships with their venture capital cousins is mostly haphazard. Firms lack the analytics to understand which types of venture capital firms provide the best referrals, who at the firm they know, and how the relationship started. Instead PE partners tend to cultivate VC relationships on an ad-hoc basis, maybe through business school alumni events or industry conferences, and leave the business card amongst the rolodex shuffle.

A better approach would be to map the firm’s footprint within the venture capital ecosystem to forecast where their best referrals are coming from. The approach would have to answer simple questions like which types of venture capital firms are proving most receptive to your outreach efforts, which dealmakers there you know best (or have yet to meet) and what happens to their cumulative referrals after entering the pipeline.

After identifying your entry points, the task then is to monitor their portfolios for investments baked long enough to start meeting your investment criteria, and proactively reaching out to these VC managers before the asset starts being shopped to competitors.

A deal platform with the right insights into your VC relationships (and pipeline) ultimately brings the strategy to life. The business intelligence should not only provide you which venture firm requires your attention, but which individual, at which office, within what sector practice should hear from you, and equally important, who within your network can setup a warm introduction. Analytics at this level of depth is fairly new, and I would encourage you to evaluate what it could mean for your own referral strategy by reaching out to me at ndonato@navatargroup.com

Because the truth is that private equity becoming a viable exit strategy for VC firms is a saving grace at a time when deal teams are eager for proprietary opportunities. Favorable regulations like the 2012 JOBS Act, which makes it easier for VC companies to hold assets longer, give the trend sustained life. The only thing left for deal teams now is to seize the opportunity.

Originally published on February 6, 2020 and updated February 26, 2021