Deepak Sindwani is a former software entrepreneur who has been a professional investor in software companies for over 20 years. Deepak is the co-founder and managing partner of Wavecrest Growth Partners, a growth equity investor in practical B2B SaaS companies. Wavecrest specializes in helping bootstrapped and capital-efficient founders of vertical B2B SaaS companies reduce risk and grow their companies from $5M-$10M ARR to $30M-$50M ARR and drastically increase the value of their companies.
Growth equity funding is a practical version of institutional funding that is different than traditional “Get Big Fast At All Costs” big venture capital approach. With more reasonable growth and exit expectations, more help for founders and their teams, and more secondary for founders (to take some money off the table), growth equity partners can help ambitious founders scale their impact with an efficient approach. Unlike private equity (PE) majority acquisitions and “roll-ups”, growth equity investors want to grow businesses organically and support the founders in their journeys.
This is an expert interview in which I ask Deepak to educate us about the growth equity funding game and answer typical questions for founders who are considering taking on a funding partner to efficiently accelerate growth after they reach $3M-$5M ARR.
Best quote from Deepak:
“We think practical valuations at funding and reasonable long-term exit expectations are good for both founders and growth equity investors. We typically invest in a 4X-8X times multiple of revenue range, depending on the growth rate, retention, management team, and other factors. And we think the 5X-10X exit range, on a much higher revenue base, makes sense in the long term.
“If you raise at high 25X revenue valuation, as many did in 2020 and 2021, then your big VC investors are still expecting 3 to 5 to 10 times their money in return. Raising at valuations that are too high can be a setup for founders that boxes them in. Public software companies trade at 5X-10X this year, so that’s a big difference that can be difficult for founders to manage with their investors.”
In this episode, Deepak explains:
- What is growth equity funding and how is it different than big venture capital (VC) or private equity (PE) funding
- The simple math for growth equity investing-growth-exit that can make sense for founders and investors
- What type of companies and founders are a good fit for growth equity funding or not a good fit
- What happened in the tech funding boom time of 2020-21 and what is happening now in 2023
- What help can founders expect from growth equity investors to help them grow and reduce risk
- How founders can take money off the table and increase the odds of creating a bigger “second bite of the apple” when they exit
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