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Founder Liquidity and Growth Equity

Founder LiquidityI’m seeing more and more growth equity financings come to market with an over-sized component of the financing allocated to existing shareholder liquidity. I’ve seen enough of these transactions to consider it as a trend and to wonder what is motivating it.

Founder Liquidity in Context

Whereas liquidity isn’t typically a feature of venture financings, it is  often – but not always – a feature of growth equity financings. A modicum of liquidity for key management team members or founders can act as lubricant for a growth equity investment, particularly where the management team founded and has successfully bootstrapped a successful business.

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Posted in Growth Equity, Raising Capital, Risk, Venture Capital

Finding harmony between advice and self-interest

advice and self-interestI just wrapped one of those calls where I had the opportunity to give advice to an entrepreneur that runs counter to my short-term interests. In this case, it is a story of a first-time entrepreneur who has built a $7 million revenue business and is wrestling with the decision whether to take growth capital or sell the business. He owns the vast majority of the company and he has a fair offer from a strategic buyer that emerged during the course of his exploring financing alternatives.

After meeting yesterday (our third meeting or so), I committed to outlining how a growth equity investor would structure an investment transaction for his business.

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Posted in Growth Equity, Lessons Learned

What is an entrepreneur to do when restrictive covenants become restrictive

Restrictive Covenants - HandcuffsRestrictive covenants are standard features of venture capital, growth equity and private equity transactions although each investor type has its own standards. Restrictive covenants are the actions a company cannot take without investor approval. A short list of typical restrictive covenants includes:

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Posted in Growth Equity, Lessons Learned, Venture Capital, Working with Invesors

Basics of Unit Economics Analysis

When an investment passes our first-screen at Meritage Funds, the first deep-dive we typically do is on the unit economics of the business. Unit economics are the fundamental financial building blocks of a business. If you can pin down the unit economics, you can determine contribution margins, break-even points and perform ROI calculations all of which can help to determine whether a Company’s economic engine works. Without an understanding of unit economics, predicting whether a business can be profitable in the long-term is all guess-work.

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Posted in Economics, Growth Equity, Investment Selection, Raising Capital

Growth Equity Investors are Hedgehogs; VCs are Foxes

Growth equity is increasingly being recognized as an investing discipline that is separate and distinct from venture capital. That being the case, how does one distinguish between a venture capitalist and a growth equity investor. In my mind, growth equity investors are hedgehogs; venture capitalists are foxes. Allow me to explain.

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Posted in Growth Equity, Venture Capital
Derek Pilling

About Derek

I'm a Managing Director with Meritage Funds, a growth equity investment firm based in Denver, CO. I've been working with growth stage businesses my entire career. When I'm not working, I ski, spin, coach youth sports and spend time with my beautiful wife and three kids.

I blog because the process helps me crystalize how I frame the world. I want to hear what you think. Please comment.

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Colorado - Entrepreneurial by Nature

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