Venture capital firms are in the midst of a seismic change. Now, they’re taking pages out of the old-school private equity roll-up playbook to juice up their investments. General Catalyst, Thrive Capital and solo VC Elad Gil are leading the charge on this new trend. Their primary focus is increasing operational efficiencies and fueling growth through acquisitions in more mature, established companies.
General Catalyst has also already invested in seven companies applying the roll-up strategy. This puts them at the very center of the emerging world of investment. Thrive Capital and Elad Gil are equally betting on this approach, aiming to consolidate management and resources to help make them profitable. Regardless, this trend reflects a willingness among venture capitalists to play with fire, using private equity-style tactics in pursuit of fatter returns.
On the IPO front, Khosla Ventures is entering this space — except in a collaborative fashion. The company’s goal is to align with a private equity-like firm that can help them make acquisitions, expanding their strategic bandwidth. Ericsson Khosla Ventures General Partner, Samir Kaul sounded certain on this approach. He thinks the firm will want to pursue a number of different opportunities in this way.
“The companies we’re looking at are very unlikely to lose money,” Kaul remarked, emphasizing his confidence in the potential of this strategy. He applauded the need for more resources, especially for early-stage startups who are having a hard time finding their customers.
As of this writing, Long Lake has won nearly $670 million in funding after just shy of two years of work. This remarkable accomplishment is proof of their effective execution of this strategy. It specializes in acquiring homeowners’ associations to streamline community management, demonstrating how efficient consolidation can create value in an often fragmented market.
For Kaul, the goal, of course, is to keep Khosla Ventures’ well-known return track record intact while it branches out into these other areas. He remarked, “My biggest stress in life is I’m managing other people’s money, and I want to make sure that I continue to be a good steward of it.” This mirrors a larger trend among VCs of committing to more responsible investment practices and recognizing the importance of preserving investor confidence.
Marina Temkin is a venture capital and startups reporter at TechCrunch, applying some of her substantial financial analyst experience and CFA charterholder chops to the beats. She focuses on what this trend means for the rest of the investment community. Venture capitalists have totally warmed up to private equity roll-up strategies. This change has opened the door for new, more creative investment approaches that have the potential to impact both investment and community development fields.
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