Private equity could be a Triangle entrepreneur’s exit ticket in 2023 – particularly if they’re growing.
Paolo DiVincenzo, a Raleigh-based investor and the serial entrepreneur behind tech startup Inorganic, a strategic process platform, classifies exits in two ways – strategics and private equity.
He said exit talk when it comes to private equity is ticking up in a big way in 2023.
With “strategics,” typically big companies looking to buyout firms for their technologies, the exit market cooled in the middle of 2022 and has yet to thaw.
“Those companies are still a little bit uncertain about the future,” DiVincenzo said, predicting the freeze may last into 2024. “They’re not willing to make big bets, taking on what are essentially unprofitable companies.”
But private equity – which takes existing companies and leverages their own coffers to help them grow – has already started to thaw when it comes to deal flow.
DiVincenzo has been advising Triangle startups on exits for years – including EmployUs, acquired by Hireology in 2021. And he said that, particularly in the second quarter, there’s been a “sizable pickup” in private equity exit conversations.
And national statistics back up his take.
Data released by research firm Pitchbook this week shows U.S. private equity recorded its first big bounce in exits in more than a year for the second quarter. Exit value surging by 66.9 percent – the best since crashing six quarters ago, Pitchbook reported in its latest PE Breakdown report.
DiVincenzo said private equity players have been better able to adjust their formulas and are placing bets again.
“I think if you are in good shape … profitable, growing at a modest rate, have decent revenue north of $2 million … you are of interest to private equity,” he said. “As long as your asks are reasonable in terms of valuation, you can get their investment.”
But in terms of strategics, seed-stage firms in the region backed by venture capital are likely not profitable. And 2023 is probably not their big growth year, he said.
“The best thing you can do right now is to start to forge those relationships where you ultimately might find an exit,” DiVincenzo said. “But don’t push the exit right now.”
He said to focus on forging partnerships so that, when the market turns, “you’ll be in a good space.”
The Triangle has seen multiple private equity exits this year, including that of Raleigh telecommunications company Celito Communications. Boston-based M/C Partners took a majority stake in the firm earlier this year.
Most recently, a consortium led by private equity firm Fall Line Capital announced it would be taking RTP’s GreenLight Biosciences (Nasdaq: GRNA) private in a $45.5 million deal.
Some of the Triangle’s other recent deals funded by private equity include April’s buyout of Cary-based PharmaSys by private equity-backed Ellab; private equity-owned CDK Global Heavy Equipment’s buy of Cary-based-Emphasys Technologies; and private equity-owned Fishbowl Inventory’s buyout of Cary software developer Sellware.