As the public markets become less friendly to high-growth tech companies, private equity firms will loom large in more ways than one. These investors tend to do large, late-stage investments that help companies avoid having to go public, which could be a great alternative if the IPO window closes. But the terms on private equity-led deals often create unique risks that appear only when times get tough and a company stumbles.
“To the casual observer, there might not appear to be much difference in deals [that include private equity funding], but there are key differences when it comes to terms,” says Matthew Stewart, an attorney at King & Spalding who specializes in growth equity investments. "The growth equity investment docs often look like watered down buyout docs or enhanced venture docs."
In laymen’s terms this means that private equity firms often seek ways to control decision-making at portfolio companies and guarantee financial returns in ways that traditional venture players do not.