Historically, when people thought of software and technology investing, they thought of venture capital. There's a reason for that, since venture capitalists drive significant innovation through investing in startups and companies of all sizes. Private equity, on the other hand, has been something entirely different: a vehicle for short-term growth and bottom-line improvement in later-stage, older companies, but little else.
That was then. Today, based on changes in the market and the growth and size of companies, investors must pioneer a new approach across the investing spectrum. Over the last five years, we've seen a shift in tech investing, and it's reaching a tipping point in 2019. Not only is growth front and center in private equity deals, but the old way of cutting costs to boost profitability hurts investments in the long run and curtails innovation.
The new private equity paradigm takes a leaf from the VC playbook, centered on making an investment a better business — not just a more profitable one for investors. By diving deeply into business practices, bringing subject-matter expertise to the table, and looking holistically at how to grow — and sustain — a company's top line, PE investors can realize robust returns while simultaneously improving businesses for the long term.
The new private equity playbook for technology investing has a few axioms.