PE Slapping VC

VC-backed founders should learn from PE-backed companies

A few years ago at a conference, a guy from a private equity firm told me: you venture capitalists are cute with your energizing stories about growth, and I might sound old school with my cashflow generating companies, but when the party is over, growth doesn’t buy cashflow, it’s the other way around - Touché…

A couple of years ago, a venture capitalist who was attending a board meeting told the founders: “You should start thinking about EBITDA” to which the CEO replied: “Do you realize what you’re asking? EBITDA provokes anxiety…” - Baffling…

There is a quote from Talleyrand that says something like “Quand je me regarde je me désole, quand je me compare je me console” which means, “When I look at myself I get worried, then I compare myself to others and I feel better”

Well, this week, I didn’t feel better when I met with those two growth-stage investors who basically made me feel like a fool. They are not investing in early-stage companies, in digital sectors only, or in organizations that mostly scale organically. They are investing in growth-stage companies that are profitable, from any sector, and that can grow through buy and build mostly. But those companies aren’t old ventures. Most of those companies have been created over the past five to ten years, and have demonstrated an incredible ability to grow fast and generate outstanding levels of profitability. And this is really inspiring because the yield of capital deployed in those companies is incredibly better than the money deployed in many venture-backed companies that really lack maturity when it comes to finance and understanding the notion of yield or returns within their own organization.

We have companies on the verge of being profitable that are considering migrating from a venture path to a more traditional private equity path. That’s what Doctrine just did recently and what Ibanfirst decided to do as well a couple of years ago. We have kept 100% of our stake in the latter, and it’s incredible to see how much growth they are generating (80-100% year-on-year) while being profitable. I remember going to their office with our intern at the time, Jules. When we left, he told me: “It’s really vibrant in here. It feels like a real company”.

I’m not looking to oppose the two models, and I do think that more traditional companies could learn a thing or two from venture-backed companies, but first and foremost, I really believe that venture-backed founders should go learn a thing or two from some of those exceptional companies that are combining high growth with profitability, often without raising a dime!

I invite every single founder who is running a startup to get out there and connect with founders who are running a different type of organization in the same or an adjacent sector. See how much they ship, sell, and get creative and scrappy with fewer people and sometimes no outside capital.

If venture-backed companies were more aware of the critical importance of increasing the yield of the capital deployed, more of them would thrive, and fewer founders would feel under incredible levels of stress and pressure.

Go get your dose of no-nonsense :-)