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What happens when private equity buys your competitor?

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Re: What happens when private equity buys your competitor?

#31

Post by ben_jones »

foxylad wrote: post #26
ryandrake wrote: post #6

> Founders are special people who somehow glimpse a vision of the future that few others understand, and then go build it. Ughh, more founder-worship. What's more believable is that lots and lots of people can see glimpses of the future all around them. Out of that larger set, the ones that are lucky enough to have access to the capital and connections needed to start up and run a company are the ones that end up as…

This. I suppose I am a successful founder, but it sure wasn't some mystical "vision of the future" - I have about ten of those a day, and I'm sure everyone else does too. We succeeded due to blind luck - right place, right time. And a lot of hard work of course, but there are multitudes working just as hard who don't succeed because their thing isn't quite compelling enough, or a large competitor suddenly appears out…

This. Can't mention luck and coincidence enough. Most startups can trace their success to meeting person x at the right time in the right way. X be an investor, an engineer, a business developer, whatever.

Re: What happens when private equity buys your competitor?

#32

Post by sl8r »

I think this is more about distributions than it is about expected values. If VC and PE generate roughly the same returns to their investors (say 20% to 25% IRR), what does this mean for the companies they invest in? Fred Wilson notes (http://avc.com/2009/03/what-is-a-good-venture-return/) that with a five year average horizon, he expects roughly three buckets of outcomes:

1. 1/3 of investments go to zero, i.e. blow up and lose substantially all of investors' money.

2. 1/3 return 1.0x to 1.5x (on average across the bucket).

3. 1/3 return 7.5x (on average across the bucket).

That is wide distribution of outcomes. In PE, on the other hand, you'd get a much tighter distribution of outcomes around 2.7x returns. A single investment (much less 1/3) going to zero would destroy the fund, so PE funds want to prevent that from happening. The conclusion is that Vista is pretty sure it can get a 2.7x outcome or better, and it's also pretty sure it wont zero its investment.

So should Ping's competitors rejoice after the Vista buyout? It really depends on how quickly they're growing and how much market share they think they can win. Do they believe that either [1] Vista will fail in 2.7x-ing Ping, or [2] they can succeed even in this 2.7x world? If they believe either of these things, then the buyout is probably good news for them; if they don't, then it's probably bad news for them.

Re: What happens when private equity buys your competitor?

#33

Post by Sacho »

NegativeLatency wrote: post #30
Sacho wrote: post #28

Earlier quoted context omitted.

> We were seriously considering Git, Jira, and Github. You were evaluating Git, Not VCS and Git? Looks like your decision was already made. It seems like you were looking for a project management tool as well, and TFS is both similar to subversion(easy transfer of knowledge) and fills that need. Why Vista's decision was obviously bad is not clear to me.

Have you used TFS?

Yes, for several years.

Re: What happens when private equity buys your competitor?

#35

Post by FireBeyond »

dmix wrote: post #22
bigbossman wrote: post #18

If a PE shop buys your competitor, you should rejoice. PE firms primarily generate returns through (1) debt repayment from free cash flow, (2) multiple expansion, and (3) operating improvements. Because of #1, PE firms like annuity-like businesses with predictable cash flow. A ventured-backed startup doesn't need to worry about #1, and therefore can focus all their internal efforts on #3. (If multiples expand, then t…

Why is "(1) debt repayment from free cash flow" appealing vs VC growth? I'm not familiar with that term. A quick search only gave me pages filled with even more finance jargon.

Did you ever watch The Sopranos? It's a more legal, slightly less unethical version of what Tony and his crew does to the sports store. They bleed it, leech it dry oil it's a shriveled corpse, ready for Chapter 11, at which point (or ideally before) they walk away.

Re: What happens when private equity buys your competitor?

#36

Post by avs733 »

mwfunk wrote: post #21
ryandrake wrote: post #6

> Founders are special people who somehow glimpse a vision of the future that few others understand, and then go build it. Ughh, more founder-worship. What's more believable is that lots and lots of people can see glimpses of the future all around them. Out of that larger set, the ones that are lucky enough to have access to the capital and connections needed to start up and run a company are the ones that end up as…

Even worse is when someone's founder mythologization (if that's a word :) reaches the point where they always capitalize the word "founder" and talk about founders (sorry, Founders) as if they were some unique species distinct from all other humans for their vision and bravery. I'm convinced this comes from a combination of extremely stressed-out people psyching themselves up, plus VCs wanting to psych up the fresh m…

>mythologization (if that's a word :)

The term I have heard used is mythicizing or mythization[1] but its not only a problem in the public sphere, it has a significant impact on entrepreneurial research and understanding/teaching entrepreneurship.

[1] Ogbor, J. O. (2000). Mythicizing and reification in entrepreneurial discourse: Ideology-critique of entrepreneurial studies. Journal of Management Studies, 37(5), 605–635. http://doi.org/10.1111/1467-6486.00196

Re: What happens when private equity buys your competitor?

#37

Post by dingo_bat »

padseeker wrote: post #8

So relevant info - I used to work at a Vista Equity owned company, one that was eventually sold to Oracle. Vista was run by a bunch of MBAs that believed that had the best insight on how a to run a software company, including what technology to use. We were evaluating better tools for version control as we had been using Subversion. We were seriously considering Git, Jira, and Github. Then Vista decided they knew wha…

What's wrong with Team Foundation? I have never used anything but git, but I have had people suggest TFS.

Re: What happens when private equity buys your competitor?

#38

Post by taspeotis »

dingo_bat wrote: post #37
padseeker wrote: post #8

So relevant info - I used to work at a Vista Equity owned company, one that was eventually sold to Oracle. Vista was run by a bunch of MBAs that believed that had the best insight on how a to run a software company, including what technology to use. We were evaluating better tools for version control as we had been using Subversion. We were seriously considering Git, Jira, and Github. Then Vista decided they knew wha…

What's wrong with Team Foundation? I have never used anything but git, but I have had people suggest TFS.

TFS used to be pretty clunky but MS has modernised it quite a bit. Especially their SaaS version [1].

[1] https://www.visualstudio.com/en-us/products/visual-studio-te...

Re: What happens when private equity buys your competitor?

#40

Post by cheez »

padseeker wrote: post #8

So relevant info - I used to work at a Vista Equity owned company, one that was eventually sold to Oracle. Vista was run by a bunch of MBAs that believed that had the best insight on how a to run a software company, including what technology to use. We were evaluating better tools for version control as we had been using Subversion. We were seriously considering Git, Jira, and Github. Then Vista decided they knew wha…

> I know Vista has had a lot of success but it certainly is not related to their ability to make technical decisions for the companies they own.

Ironically, this is the case for 90% of software-run businesses. The technology matters very little beyond initial profitability. Initially, technology is important because it allows you to leverage, but once you can leverage revenue instead, the quality of your technical decisions generally don't matter so long as they aren't super dumb.

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