Brano Perkovich

The Silver Tsunami is upon us, and it's reshaping the mergers and acquisitions landscape like never before. With an estimated $10 trillion in assets set to change hands over the next decade, driven by baby boomers retiring, the opportunity for savvy investors and entrepreneurs is immense. Currently, around 30,000 businesses sell annually, but with more than 8 million baby boomer-owned businesses expected to transition, the volume of transactions could increase tenfold. This is a monumental shift that smart buyers are already preparing for. You don't need to be a Wall Street titan to benefit from this trend; many of these businesses will transition to local entrepreneurs and small business owners. Are you ready to seize a piece of this $10 trillion wealth transfer? Position yourself strategically to take advantage of this unprecedented wave of opportunities. Engage with fellow professionals and explore how you can be part of this transformation. Not sure how? Let's talk about it! #SilverTsunami #MergersAndAcquisitions #BusinessOpportunities

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Here’s a question investors are often asked: When evaluating early stage companies, how much time do you spend on due diligence around future exits? It’s not surprising we hear this question a lot. Also not surprising: it’s got a wide range of answers depending on the firm. Some don’t spend much time here at all. Others make it a point to put meaningful time in as part of their process. Our current thinking: take the time to do the work on public market comps. At Alpaca VC, we spend significant time understanding how public market investors will  realistically value a business based on margin profile, product, business model & TAM. In short, we want to know: how will this company be valued at scale when we get taken out? Yes, we can acknowledge that the journey toward exit is a windy road and that there may be pivots along the way, but there are still public market companies that have a business model similar to the early stage company you're evaluating. And you can always look at gross profit multiples if you think the margin profile will change over time. So we still do the work on the comps. Quantitative metrics we look at when making the comparison to public market comps include EBITDA multiple, revenue multiple, Gross Profit multiple or all of the above. As part of this process, it’s also important to factor in the public market company’s year-over-year revenue growth as this will also significantly impact the multiple it trades at. Simple example: if you have two public market companies with similar business models and similar margin profiles, but one's growing 100% year over year, and one's growing 50% year over year, then obviously the DCF (discounted cash flow) analysis is going to spit out a very different valuation for the one that's growing faster. Why this matters: When you take all of that information into account as you evaluate an early stage business, you can begin to create a realistic picture of how this company will be valued in the public markets at exit - or how an acquirer will value the company for an acquisition. Strategic acquirers may, of course, pay a premium, but we won’t underwrite for that. This allows us, for example, to form conviction around valuation based on revenue and gross profit predictions. If we think they can do $100M of revenue five years from now, we use this diligence process to form a thesis about whether the characteristics above (product, margin, business model, etc.) will cause the company to be valued at $200M vs. $500M vs. $1B at exit. Curious how other early stage investors think about underwriting an exit and how much time they’re spending on public market comps even though these companies are in their infancy.

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Is Now the Best Time to Raise a Private Equity Fund? According to industry leaders, it just might be. "I’m much more optimistic at this point in the cycle in 2024 than I was in 2023 and 2022," says Andy Lund, global co-head of Houlihan Lokey's Private Funds Group. Despite expectations of a slowdown, the first half of 2024 has been unexpectedly successful for PE managers raising capital. U.S.-based funds closed on $155 billion by the end of June, slightly ahead of the first half of 2023 (PitchBook Q2 2024 US PE Breakdown). Alex Russ, head of North America for Evercore's Private Funds Group, sees this as an ideal moment for GPs with open funds. "We saw fewer new fundraise launches in 2024 than in 2022 and 2023, leading to a slight easing, which we expect to continue into the second half of this year," he notes. However, challenges remain. LP capital is still largely locked until M&A and exit activities resume. Evercore anticipates flat PE fundraising figures for 2024 compared to 2023. Moreover, other asset classes are vying for already limited institutional capital, with private credit showing particularly strong growth. In this context, Maria Konnikova’s "The Biggest Bluff" offers an insightful analogy. Inspired by "Theory of Games and Economic Behavior" by John von Neumann and Oskar Morgenstern, the book explores von Neumann's belief that poker epitomizes the delicate balance between skill and chance that governs life. Doing well at poker isn’t just about playing well; it’s about playing well relative to everyone else. And even with the best strategies, luck plays a critical role. As Nobel-winning economist Daniel Kahneman notes, "The successful funds in any given year are mostly lucky; they have a good roll of the dice. There is general agreement among researchers that nearly all stock pickers, whether they know it or not—and few of them do—are playing a game of chance." The last two years were like drawing a bad hand in poker for those raising funds. The book also emphasizes the importance of thinking like a Strategist—something I’ve honed throughout my career. Each move requires reassessment based on new information. You need a plan that evolves with feedback and supports long-term, good decision-making. If you’ve lost your chips, was it due to an unlucky situation—or because your strategy was flawed? A recurring mantra of Poker Hall of Famer Erik Seidel is "less certainty, more inquiry." If that becomes your guiding principle, not only will you actively listen, but you will also adapt and grow. For GPs, strengthening relationships with existing LPs is more crucial than ever. Now is the time to leverage your learnings and craft compelling narratives that showcase your commitment to value creation and strategic growth. By highlighting your firm's ability to navigate complex market dynamics, you can strengthen LP alignment and foster the partnerships needed for long-term success.

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"Small funds may have more incentive to produce higher returns The alignment of incentives between GP and LP varies drastically based on fund size. Managers of smaller funds who have invested substantial personal capital demonstrate an unwavering commitment to lucrative returns, while managers at the helm of colossal funds, buoyed by significant management fees, may exhibit a diminishing drive. This constitutes an almost incontrovertible structural benefit of managing a small VC fund. Furthermore, fund managers of established funds may, over time, raise larger subsequent funds and grow more risk averse. This can present a sub-optimal outcome for their LPs and, by virtue, manifests a bad omen for VC investing." https://lnkd.in/gHKgea4e

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💡Benchmarks in the investment industry serve as a standard for measuring the performance of securities, mutual funds, or investment managers. They provide a reference point for analyzing allocation, risk, and return of a portfolio, enabling investors to make informed decisions. Thanks Peter Walker for keeping us all informed!! Can’t wait for this!! Follow and get on the waitlist for this one! #benchmarks #fundraising #Capitalraise #founders #womenshealth #femhealth #medtech #wellness

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LP Tip #20 out of #50: To re-up or not to re-up A re-up refers to an LP making an additional investment in a fund where they previously invested. Before we dive in I want to share that there are reasons an LP may not to re-up which are not in your control. Here is a short list: ➡️ The LP may have evolved their strategy and needs to scale back the #️⃣ of funds they invested in.   ➡️ The LP was never set up to re-up in the first place. ➡️ The LP could be an individual that found themselves in a cash crunch and overly exposed to venture.  I'm assuming that when you got your investment that the LP explicitly told you they do re-ups. Please do not assume they do. My expectation is also that the LP dug in to properly underwrite the fund. 🏴 Re-ups are not automatic. An LP will have to re-underwrite each fund. The speed of the re-up also depends on how much work was done in the initial investment, who led the investment, level of confidence there existed when that investment was done, and current pipeline of funds. There are 4 flags that may cause an LP to walk away. 1️⃣ Partner Breakups/Changes and Team Turnover:  The biggest risk in Partnerships are whether the Partners will stay together. One LP gave me a framework on how to think through this issue that has stuck with me. Partnership is like a marriage. If one feels there is potential for a breakup, does one believe it will be an amicable breakup? Or, does one believe the spouses will never talk again? If it is an amicable split that is manageable. The Partners can find a way to support the fund. Then the question becomes whether the LP wants to back the Partner/s that remain.  If there is high team turnover. The LP will want to investigate because team stability is used as a proxy for firm sustainability and ability to scale. 2️⃣ Fund Does not Execute on what they Sold the LP:  The LP “bought” something specific and typically it is because they were missing this strategy or wanted exposure to a strategy for the portfolio they were constructing. An institutional LP will invest and write a detailed investment memo flagging all the things you said you were going to do and then go back and compare when you come back to ask for money. If for example you pitched a generalist seed stage fund and you show up asking for money sharing that you invested in deeptech at A that will cause alarm. The same can be said for the number of companies you promised to invest in or check sizes you wrote. If there are big differences LPs will want to know why. 3️⃣ Bad Actions  The fund manager/s does something that is unethical. This is a no go for an LP.  What if the situation is not clearcut? This is different for everyone and requires discussions b/w GP and LP, but most LPs don't want headline risk. 4️⃣ Continuous Underperformance  If it's early days an LP will look at some key indicators to see how you are progressing over time.

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VC world can be cruel and unforgiving. With LPs more and more pushing for distribution and liquidity, fund managers in the mid-tenure of their fund with zero DPI and TVPI around 1.0 would have much more difficulty to raise new fund. The ability to fundraise is one of the crucial indications and validation of the job for VCs. Key highlights from the article below: Thirteen percent of venture General Partners (GPs) no longer plan to raise another fund due to LP pullback. This rate has doubled since H1 2023 when only 6% of GPs had no plans for another fund. Nearly 44% of venture firms surveyed in mid-2023 had previously postponed their fundraising plans due to concerns about overexposure to the asset class. Many emerging managers entered venture capital in 2019 or 2020 when the LP market supported more funds. However, slow exits in the first half of 2024 have led to challenges in raising second funds without significant cash distributions to LPs. Some venture GPs are now actively participating in the secondaries market to demonstrate returns. Despite the challenges, GPs who secured fresh capital remain optimistic. They expect the 2023 and 2024 vintages to be the strongest return years since 2019. 🚀📈 #VC #VentureCapital #Fundraising #LPs #EmergingManagers #TechInvestment #MarketTrends #CountdownCapital #IndustryInsights #JetVentures #JetInvestment‍‍‍‍‍‍

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This is quite interesting advice and also quite a non-consensus view in the B2B software world. Cross-border founders who are considering the US vs International incorporation question should consider this as valuable input.

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PE - Hedge Funds Hit by Lack of PE Exits (and one way that PE firms can boost exits) Financial Times: https://lnkd.in/edACss_X FYI - one way to get more PE exits is for the PE fund to have a domain expertise GTM and have deep knowledge on how to increase the Revenue Growth of portfolio companies which boosts cash, profits and margins. --- #pe #privateequity #business

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🔥 🔥 🙌 🙌 🎆 🎆 I'm *fired up* to share this. #VentureIQ by the 9point8 Collective is officially live. We've heard from investors of every size and type that it takes too long and costs too much to evaluate deal flow; this limits the scale and speed at which these capital allocators can operate. To address this problem, we've created an innovative solution which delivers high fidelity diligence information near instantaneously. From a time and cost perspective, VentureIQ immediately creates leverage to look at more deals - and creates space to focus deeply on the most meaningful opportunities. To learn more, you can reach out to me directly or visit VentureIQ.ai. I'll close with some thoughts on my team, to whom I'm so grateful. Blair Merlino, Neal Ghosh and Evan Allen don't just talk about interesting concepts, point out problems or pontificate on what could be. Instead, they identify a problem, frame and validate the solution, and do the work to bring it to reality. VentureIQ is the best example I've seen of this, to date. #VentureCapital, #FamilyOffice, #PrivateEquity #CorporateDevelopment #Startups

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This FT article has a fancy graphic illustrating the layers of debt in private equity, but -- despite my prior post warning about the risks of debt layering in PE -- this article is inaccurate scaremongering. Here’s the key line: “Much of this lending is ultimately underpinned by the financial health of a fund’s portfolio companies. Yet every transaction ends up adding more leverage to heavily indebted businesses, which can make them more vulnerable in a downturn.” This statement is fundamentally incorrect. From the leverage used by General Partners or Limited Partners on their overall private equity portfolios to the use of subscription lines, secondary fund leverage, and leverage by funds purchasing GP stakes—none of these add leverage to the individual businesses or increase their susceptibility to economic downturns. The only mechanism that does add leverage to a business is a dividend recapitalization. However, the alternative is typically the PE firm selling the business to realize its investment, where the acquirer, especially if it’s another PE firm, would likely employ the same amount of leverage. Net Asset Value (NAV) loans may represent leverage on leverage from an LP’s perspective, but they do not increase the portfolio company’s debt or its bankruptcy risk during a downturn. Instead, they merely increase the possibility that the GP might need to sell sooner than desired to repay fund-level debt. Therefore, the only factor impacting a portfolio company’s failure probability is dividend recapitalization. The bank’s expertise is to assess the risk of its debt investment in the company. Whether a GP sells a stake in their management company, an LP sells a stake to a secondary fund, or the fund uses a subscription loan (a short-term loan backed by LP capital commitments to optimize investment IRR by delaying capital calls) to purchase the company—none of these scenarios affect the portfolio company’s ability to weather a downturn. “There should not be a pocket of the market that touches on so much of the economy in such a sizeable way, where we can say, ‘oh there’s leverage,’ and then very few of us can explain what that leverage means and why it might—or might not—be risky,” said Victoria Ivashina, a professor at Harvard Business School specializing in private capital. I can only assume Professor Victoria Ivashina was either unaware of the article’s specifics or, as a private markets expert, she is 'one of a few' (?) who could have alleviated the author’s concerns about this ‘web of debt.’ Moreover, where is the causality here? There is no indication (other than the title of the article) that PE firms are coercing banks into making these loans. The title could just as easily have been “How Banks Have Mired PE Shops in Potentially Depression-Inducing Debt.” Both parties willingly engage in these transactions, and as new debt products emerge, banks are as proactive in marketing them to PE firms as the firms are in seeking them out.

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As the IPO window remains shut and other paths to liquidity (buyout and M&A) remain compressed, the Cerebras Systems S-1 filing is a cautious welcome sign for the venture capital asset class. As the first "pure play" generative AI company to go public since ChatGPT's release, this marks what could the beginning of a new technology IPO wave. The company is making the bold attempt to take NVIDIA head on: ✅ Cerebras has developed a novel wafer-scale AI chip that is 57x larger than a GPU with 7,000x the on-chip memory  📈 Revenue grew a an incredible 1,122% YoY to $70M in latest quarter 💰 Blue-chip technology investors including Benchmark, Coatue, and Altimeter But the S-1 filing also reveals some notable challenges and risks: 🚩 83% of revenue came from a single customer in 2023 🗳️ Possible CFIUS scrutiny over their relationship with an Emirati company 🧑‍💼 CEO named in prior SEC enforcement action in early 2000s We will continue to keep an eye out for more details in the coming months around IPO pricing and the company’s regulatory squabbles, but in the meantime, please enjoy the full essay below.

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During our Annual Investor Day, we discussed a trend we’ve been observing in the VC market: Funds increasingly using “extra downside protection” to compensate for slow growth & inflated valuations of companies. We’re now starting to see some skeletons come out of the closet (and, ironically, they might be the driving force that will re-open the IPO window). First one out: ServiceTitan https://lnkd.in/eNMuPAe6 ps: despite the compounding IPO ratchet structure, I believe ServiceTitan is a solid company and, at the right price (factoring in all adjustments), it's a great deal!

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The Stripe IPO could return 1/2 of the capital that the VC industry raises in total in a given year.

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We are so excited to announce our investment in Misha van Beek and Sebastian Janisch, CFA Janisch, and their company, Bayesline, Inc. Bayesline is a risk management software built for the speed of markets - not for the speed of humans. The challenge? The world is in constant flux, with countless interdependent variables changing all the time. Building and updating risk models can take days - or even weeks. An eternity in the world of asset management. Enter Misha and Sebastian. They’ve built an AI-powered platform capable of delivering risk assessments in seconds. For those old enough to remember, it feels like the introduction of spreadsheets with Lotus 1-2-3 (for Gen Z: Microsoft Excel) in the 1980s - revolutionizing financial planning and modeling forever. Their product is as transformative for traditional assets as it promises to be for digital ones. Creating something as sophisticated as Bayesline requires a rare blend of IT, risk management, and quantitative expertise - paired with experience at institutions like BlackRock and Bloomberg. During our due diligence, one expert estimated that only about 20 people worldwide possess the skill set to tackle what Misha and Sebastian are building. Now that’s a moat we like. We’re proud to join Misha and Sebastian on their journey alongside wonderful co-investors like Y Combinator, 468 Capital, and Multimodal Ventures. #bayesline #riskmanagement #blockchainfounderscapital #startup #venturecapital #fintech

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Rethinking Value Creation in Private Equity Having been immersed in the private equity landscape, I've observed a notable shift in how we approach value creation. The traditional levers—revenue growth, margin expansion, and multiple expansion—are now under greater scrutiny than ever before. From 2013 to 2023, nearly half of the value creation in global buyout deals came from multiple expansion, with revenue growth contributing 53%. However, margin expansion accounted for less than 1%. It's clear that we can no longer rely heavily on multiple expansion as a primary driver of enterprise value. Instead, we must shift our focus towards often overlooked areas, particularly margin expansion, and redefine value creation to include equity value and the strategic use of free cash flow for debt reduction throughout the investment cycle. Key Areas to Focus On: -Revenue Growth: In buy-and-build strategies, especially in the lower middle market, there are abundant opportunities for top-line growth. Professionalizing sales forces, optimizing customer acquisition channels, and expanding product/service lines—whether organically or through acquisitions—can also lead to meaningful margin expansion. -Margin Expansion: While cost-cutting is a well-known method, it’s often unsustainable. By focusing on service lines with higher recurring margins and driving synergies through buy-and-build strategies, we can achieve more sustainable margin improvements. -Multiple Expansion: Although its role will be more limited, opportunities still exist, particularly in the lower middle market. Managing cost-basis and pursuing accretive add-ons can still result in multiple expansion, especially when platforms scale and achieve a premium upon exit. -Net Debt Reduction: With the rising cost of debt, free cash flow becomes a critical focus. Setting value objectives that increase FCF allows PORTCOs to pay down debt over the investment's life, enhancing equity returns. Deciding whether to use excess FCF for debt reduction or reinvestment should be guided by a thorough ROI analysis. The future of value creation in private equity is about more than just numbers—it's about making strategic shifts towards margin expansion and prudent financial management to ensure sustainable growth and strong returns in an increasingly competitive market. #PrivateEquity #ValueCreation #InvestmentStrategy #RevenueGrowth #MarginExpansion #MultipleExpansion #NetDebtReduction #BuyAndBuild #LowerMiddleMarket #PE #FinancialManagement #BusinessGrowth #PortfolioManagement

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Too many small and mid-sized businesses struggle with capital constraints out of fear and misunderstanding. Sourcing the capital required to remove those constraints is key to unlocking the value creation potential of these companies. https://lnkd.in/gRYTKEmN #smallbusiness #businesstransformation

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Ever wondered why merged companies often have a higher valuation than their standalone counterparts? The answer lies in multiple expansion, a phenomenon where larger companies attract a broader pool of buyers and financing options. Investors tend to perceive larger businesses as less risky, leading to a higher valuation. For instance, if you merge three companies, each generating $1 million in EBITDA valued at a 4-5x multiple, into one entity generating $3 million, the new company might trade at a 6-7x multiple. This enhanced valuation can create millions in additional value. Understanding this strategy is crucial for gaining a competitive edge and maximizing business worth. Have you considered this? Let's talk about it. #MergersAndAcquisitions #BusinessStrategy #Valuation

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