Private equity firms traditionally kept technology investments away from their portfolios, with Silver Lake Partners being the sole exception among $10B+ funds. The lack of Private Equity (PE) deals led to over-sized Venture Capital (VC) funds such as Softbank's Vision Fund. A PE fund with $100B worth of Assets under Management (AUM) is somewhat unremarkable, however the same AUM in VC is considered ludicrous and unsustainable.
Limited Partners in Venture Capital also tend to prefer ventures with lower risks that are closer to exit events. Such investments in late stage Venture Capital and Private Equity will intersect more and more over the coming decade. This will translate into larger VC funds, and a growing number of Private Equity firms looking into technology ventures.
The technology industry is also drastically different from what it was in the last decade. The Web, being the most transformative component, is just over 30 years old 🍾. The web is now as established as the injection molding machines that produce rubber ducks in factories owned by large PE firms.
The embedding of the web and tech industries into our everyday lives translates into untapped Private Equity opportunities over the next decade. There are three core factors that indicate that the next decade will see an upshot of Tech Private Equity opportunities:
- The web is reliable
- The web is dependable
- The web transacts a considerable amount of money
As more and more companies become established players within their niches, PE funds will be able to acquire, optimize, grow horizontally into new verticals, and exit at great return ratios.
Multiple industries also evolved into tech focused offerings, enabling a wide range of new services and possibilities. It is common for incumbent industry CEOs such as bankers to refer to themselves as a Software Company with banking on the side. This will ring true to more and more industries that become digitized.
The required strategies to grow such tech ventures will differ greatly from traditional Private Equity playbooks. Deep technological understanding will be required, and a strong strategic view of market trends, competitors, and emerging technologies will be critical for long term success.
The tech landscape will also favor technology companies that own defensible Intellectual Property (IP) such as patents, marketplace platforms, and businesses that benefit from economies of scale. The winner takes all approach of VCs may not be as strict on Private Equity, where long term returns and growth may be more favorable than explosive growth at a huge risk.
We expect to see a significant increase in Private Equity deals at Outroll. The whole PE industry will evolve to embrace tech as it gets more established, and investors demand portfolios that include modern companies. 2020 will be an exciting year for Venture Capital and Private Equity.