As a SaaS founder or executive, it’s important to understand which kind of investor to approach, and when the timing is right.
This guide provides a short introduction to private equity (PE), a list of prominent private equity firms in London, and a discussion of where this form of investment fits into the lifecycle of a tech company.
What is private equity?
Private Equity refers to capital raised from funds and investors that invest directly in companies with the aim of growing them and selling at a profit. PE investors raise rounds of capital from partners and then invest that capital into promising companies.
Most software companies are familiar with Venture Capital (technically a type of private equity – both invest in private companies), but the two terms refer to different styles of investing.
Private equity vs venture capital
Venture Capital (VC) is a type of private equity investment that focuses on early-stage startups – often with a focus on fast-growing technology companies. Investing in young companies can be risky, and this risk is weighed against the potential for rapid growth of the investment.
In comparison, private equity firms tend to invest in more mature companies and more traditional industries. Where VCs tend to take a minority stake in a high-growth, high-risk company, PE firms will often acquire a majority stake in companies that have a more established track record of earnings.
Do private equity firms invest in software companies?
Software companies have not traditionally been primary targets for PE firms, but that’s changing.
According to analysis by Protocol and PitchBook, PE is investing more than ever into the software industry (over $18 billion in the first half of 2021), citing the following factors:
- Popularity of SaaS subscription models (more predictable recurring revenues).
- Prevalence of software IPOs (provides an attractive exit strategy).
- Abundance of software providers (gives many options for building a portfolio of companies in the sector and strategically acquiring customers).
- Overall growth opportunities for software companies due to the current demand for business software.
The increased interest of PE firms in software companies is blurring the traditional lines between PE and VC investment, but on average, PE firms are still favoring larger investments in software companies that are more mature.
Private equity firms in London
Here we’ve listed a few private equity firms with offices in London to get you started with your research. The following firms have a history of investing in technology and/or software companies.
- KKR: PE firm focused on growth-stage companies.
- Accel-KKR: PE firm investing in software and technology-enabled services companies.
- SilverTree Equity: software and technology focused PE firm.
- Livingbridge: PE firm with several technology investments.
- Zouk Capital: PE firm investing in commercially proven technology companies.
Software becoming more attractive for PE firms
Private equity has long been associated with more traditional business models, but the interest in technology companies is increasing from private equity firms in search of higher returns.
In 2021 the way to think about private equity investment is not whether you should include private equity firms in your plans, but when. Private equity can provide an extra exit option for founders and early investors who can understand the correct timing and tailor their offer to a private equity firm looking to profit from the deal.