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Growth Private Equity - Investments In Technology

Upside Potential of Venture Capital with A Downside Cushion


While VC and traditional buyout investment strategies are well known to investors, Growth Equity has evolved and matured into one of the best performing private equity strategies over the last 15 years. In fact, Growth Equity performed the best over 10+ year horizon compared to VC and buyout PE, according to a Cambridge Associates study. Furthermore, Growth Equity portfolio companies grew revenue and EBITDA even during the global financial crisis (2007 – 2009). We have invited Arcis Capital Partners (“ArcisCap”), a NYC-based growth private equity investment firm, to share their insights on Growth Equity.


KEY TAKEAWAYS

  • Growth Equity has outperformed VC and buyout strategies over the last decade

  • Upside potential of VC with attractive downside protections

  • Has performed well during the 2008 financial crisis and well-positioned for potential economic downturn

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GROWTH EQUITY BETTER RISK ADJUSTED RETURN PROFILE

For the level of risk taken in investing in a specific company, historical data suggests that Growth Equity funds have earned superior returns.


​​Over the last decade, Growth Equity has outperformed VC and buyouts.


US Growth Equity, Buyout, and Venture Capital Periodic Rates of Return

GROWTH EQUITY SWEET SPOT

Growth Equity has different characteristics from both venture capital and traditional buyout private equity, and consequently represents a niche opportunity in terms of low risk-high return profile sought by investors.


Growth Equity firms create value by accelerating revenue growth and delivering targeted operational improvements with a hands-on approach unlike more traditional buyout strategies where extensive leverage is deployed to drive majority of the upside.


The chart above highlights typical capital types and associated strategies used over the course of a company’s life cycle.



PORTFOLIO COMPANY CHARACTERISTICS

The table highlights some of the key characteristics of typical candidate companies for venture, growth and traditional buyout strategies.

Table that highlights some of the key characteristics of typical candidate companies for venture, growth and traditional buyout strategies.


PORTFOLIO COMPANY RISK PROFILE

The table below highlights some of the key differences in risk profiles of target companies.

Table that highlights some of the key differences in risk profiles of target companies.

PORTFOLIO COMPANY LIFE-CYCLE

An ideal candidate for ArcisCap is one that is experiencing substantial managerial, strategic or operational hurdles obstructing business development and has identifiable opportunities for margin expansion through improved operational efficiencies. The company should also require broader market access to scale growth and be able to thrive in the immense, complex and growing US-Asia cross-border ecosystem.


The chart helps visualize the full life cycle of a company and where the ArcisCap Growth Equity strategy fits.

Graph of a full life cycle of a company and where the ArcisCap Growth Equity strategy fits.


VC TYPE EXPOSURE WITH LITTLE OR NO TECHNOLOGY RISK

The popular perception is that buyouts, which invest in established companies with stable cash flow, should theoretically have superior downside protection. The observed data shows that the gap between Growth Equity and buyouts, at least for US companies, is not vast.​

Data showing the gap between Growth Equity and buyouts, at least for US companies


WE ARE IN LATE-STAGES OF ECONOMIC GROWTH CYCLE

This is the right time to think about Growth Equity due to the length of the cycle and run up and valuation/style drift by all private equity strategies. OECD has cut growth forecasts recently again on trade tensions and rising uncertainty. Other Industry forecasts from different sources tell the same story of slowing macroeconomic growth.

OECD Interim Economic Growth Outlook projections chart


THE OPPORTUNITY NOW – UPSIDE POTENTIAL WITH A DOWNSIDE CUSHION

According to Cambridge Associates, from 2008 through 2017 Growth Equity companies generated an average annual revenue growth rate that was 2x that of buyout companies and 3x that of public companies.


​​On the flipside, Growth Equity has a demonstrated history of performance in market downturns as seen in 2009 when PE Owned Growth Equity companies were still able to manage positive revenue growth.

Average Annual Revenue Growth Rate of companies

Special Thanks to Our Contributor

Arcis Capital Partners Logo

​Afzal M. Tarar

Chairman &

Managing Partner

W: +1-212-634-7173

afzal@arciscap.com


Omear Khalid

Principal

W: +1-212-634-7173

omear@arciscap.com


54 West 40th Street

New York, NY 10018

www.acriscap.com


Arcis Capital Partners LLC (“ArcisCap”) is sponsoring Arcis Technology Growth Fund LLC that invests in US technology companies with proven business models that are poised to grow – companies that we believe can meaningfully benefit from our approach of “Growth Engineering” to produce transformative change and accelerated growth in both the U.S. and Asia.


ArcisCap team is deeply rooted in global growth and performance transformation – strategic, financial, operational and technological. The team consists of globally experienced operators and investors, advisors and strategists, bankers and deal makers, and entrepreneurs. The team has differentiated experience across healthcare, digital technologies and cleantech.


The objective of the ArcisCap approach is to position our companies for an expedited exit. ArcisCap does not commit to any investment without first developing a clear roadmap for growth and identifying targeted paths to exit.


ArcisCap has already secured several exclusive investment opportunities and curated numerous opportunities, many with asymmetric global growth potential.


The firm is headquartered in New York City with offices and partner presence in Atlanta, Cambridge, Orlando, Beijing, Shanghai and Hong Kong.




About PrimeAlpha

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Important Disclaimers
This article (the “Article”) is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any investment or any securities. This Article does not constitute investment advice and is not intended to be relied upon as the basis for an investment decision, and is not, and should not be assumed to be, complete. Readers should make their own investigations and evaluations of the information contained herein. The information contained herein does not take into account the particular investment objectives or financial circumstances of any specific person or entity who may receive it. Each reader should consult its own attorney, business adviser and tax adviser as to legal, business, tax and related matters concerning the information contained herein.  Except where otherwise indicated herein, the information provided herein is based on matters as they exist as of the date of preparation and not as of any future date and will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changes occurring after the date of preparation. Certain information contained in this Article constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,”  “target,” “project,” “estimate,” “intend,” “continue” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statements. Readers should not rely on these forward-looking statements.  Certain information reflects subjective determinations which may prove to be incorrect. There can be no assurance that the estimates or projections will be accurate or that historical trends will continue. In considering the prior performance information contained herein, readers should bear in mind past performance is not necessarily indicative of future results. All rights reserved. The material may not be reproduced or distributed, in whole or in part, without the prior written permission of PrimeAlpha LLC. 

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