In tech, the boundaries between venture capital and private equity are increasingly blurred, with tech ‘start-ups’ raising hundreds of millions of dollars at huge valuations.
I had the chance to catch up with GPs and LPs at 0100 in Dublin last week, where we debated ‘value creation’. This is a favourite topic of event organisers but what it means in the context of tech investing is not obvious. Are operational improvements the driving force or is it financial discipline and smart M&A? Traditionally the latter would have been more the focus of the private equity investor but these days, tech challengers need this type of support from their VCs to outpace competition.
I argued that moving quickly is crucial if you’re trying to build a platform like a food delivery or ridesharing business. At Global Venture Partners, we help companies grow fast across borders. New ventures in Europe have to tackle multijurisdictional complexity in order to scale much earlier in their lifecycle than in the US. These are complex challenges for a venture management team trying to focus on core business. They can quickly get lost in the mumbo jumbo of deal-making without the right help.
But once a venture can crack that challenge, it can quickly become a strength. Coping with multiple countries, languages, cultures and legal jurisdictions to access new markets means European or South-East Asian start-ups are readier than most to handle internationalisation.
My fellow panellist, Shirin Dehghan of Frog Capital, said that a supportive investor clearly increases the chance of success of portfolio companies. Hans van Swaay from Lyrique felt that this is well understood by the family offices he advises, who see great opportunity in ‘scale up’ capital for tech businesses.
‘Value creation’ means helping these companies develop from an early stage to larger, more professional organisations. VCs and private equity investors that have the experience from building other such businesses can really make the difference. So it seems the answer to the question whether value creation should focus on operational change or strategic deal-making – at least in technology growth investing – is definitely both!