Why Growth Equity Funding is the Opposite of Crazy Big VC Funding

Most people don’t know that when a practical SaaS company raises money from a growth equity investor or private equity investor, those dollars mostly go to the founders.

It’s not risky rocket fuel for the business like the VC funding game.

It’s mostly money off the table—a partial exit prize—for the savvy founders who created fuel-efficient businesses with steady growth.

This practical world of growing and funding unsexy B2B SaaS companies is where most of the action is in the software business right now.

It’s also where founders are winning more overall.

These founders created valuable companies, and they kept their option to sell all or part of the business when it made sense to them.

Growth equity investors play a huge role in helping successful SaaS founders take money off the table and keep growing their practical software businesses.

In this week’s podcast, I discussed the world of growth equity investment with Philip Dur, a 20-year investor veteran and managing partner of PeakSpan Capital.

PeakSpan Capital is a growth equity investment firm that works with bootstrapped SaaS founders who are scaling up to become sizable market leaders.

Phil has been funding capital-efficient software founders for over 20 years and has served on 40 boards with those companies.

Phil explains that the growth equity approach is almost the opposite of the VC investment game.

For starters, Phil works with founders who want to keep growing their business but still retain the option to sell all or part of it at practical points along the way.

Founders can’t do that when they take on big VC funding. In the venture world, it’s go big or go home, but it’s the opposite with growth equity partners.

As Phil describes it:

“I recommend every founder do some honest reflection and ask yourself, what is really the first exit value where I might want to transact and sell all or a part of my business?

“If you raised or want to raise outside capital, make sure that your investment partners are making interesting returns at that outcome so you can make it happen if there’s a great place for you to pursue liquidity.

“Alignment and optionality are two unsung heroes that are hugely beneficial to bootstrapped and capital-efficient founders. Growth equity aligns with that.

“You have the option to raise outside capital or not and the ability to sell all or part of your business at the right time. Alignment with your founders and any practical investment partners is required to be able to do that.

“I think every time you raise, you should take secondary and take a little bit off the table.”

VCs and VC-funded founders don’t try to keep their optionality.

That’s just one way that growth equity is different than venture funding.

Phil describes more ways that growth equity can be practical and useful on the Practical Founders Podcast this week.


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