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Rishi Jain is managing director, head of Western Region for Accordion, a private equity financial consulting firm, focused on the Office of the CFO.
It’s been said that private equity has a crush on technology. But dismissing the growing relationship as a crush would not only do it a significant disservice, it would miss the undercurrents at play that are making technology such an attractive, long-term private equity target.
Flags - Equity - Equivalent - Gold - Rush
Those raising flags insist we’re witnessing the private equity equivalent of the Gold Rush. The analogy suggests that a wave of funds are now chasing a limited number of appropriate tech investments and will soon find themselves with little ROI or steep losses. These critics have pointed to four key warning signs.
First, there is the seemingly abrupt, marked increase in private investment in tech — from $43 billion in 2015 to $148 billion in 2016.
Paradigm - Paradox - Equity - Model - Investment
Second, there’s the paradigm paradox: The private equity model has long favored targeting the underperforming investment for a relatively short-term turnaround and sale. The high valuations of tech firms, combined with pace and peril of changing tech trends, make the sector an odd target for buyout firms.
Third, there’s the surprising shift to sector specificity. Private equity firms have rarely exclusively focused on a sector (en masse) in the manner in which a slew of new tech-focused buyout firms have of late: Vista, Silver Lake, Francisco, Accel-KKR, Symphony Technology, Insight Ventures, Thoma Bravo, etc., etc.
Platforms - Technology - Funding - Tech - Access
And finally, there’s the more traditional platforms for technology funding, which include tech’s access to both VC money and raising capital via public offering.
A closer look, however, will tell you the flags have been planted on very shaky ground. There are undercurrents at play in the intersection of tech and private equity that not only render the warnings moot (or at least exaggerated), but actually create...
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