PE in VC in 22

In 2018 at Saastr, Jason Lemkin & I talked about private equity becoming an increasingly aggressive buyer of venture-backed software companies.

Last year, private equity firms inhaled $29 billion dollars’ worth of startups - a twenty-year record and 50% more than the previous peak.

The high-water mark underscored the importance of private equity sponsors as an exit avenue for startups in black Sharpie marker. In 2021, PE buyouts constituted more than 20% of venture-backed M&A by dollars, doubling in the past decade.

VC2PE transactions - startups bought by PE funds - record median sales prices consistent with strategic M&A - when companies buy startups. The most recent surge notwithstanding.

Who makes for the most attractive VC2PE targets?

Private equity companies typically target SaaS/IaaS companies at $20M in ARR or more with good unit economics and growth in the 10-30% per year range. Gross & net dollar retention marks must impress, and net income should hover close to profitability.