Even venture capital firms are getting in the game with private equity roll-up strategies, looking to buy and consolidate established companies. General Catalyst, Thrive Capital and solo venture capitalist Elad Gil are just a few adopting this new smart money hack. This trend is indicative of a larger change in the perspective of venture capitalists towards possible investment opportunities and company leadership.
General Catalyst has famously funded seven companies through this roll-up strategy. This process is done by acquiring other competing businesses in the same field to cut down competition and save money through economies of scale. General Catalyst is purposely building these aligned management teams. This perspective places them in the vanguard of a new, hybrid asset class that will play an increasingly prominent role in future markets.
As we write this, Thrive Capital and Elad Gil are actively pursuing similar strategies. This is a strong signal that venture capitalists are adopting the roll-up model as a legitimate venture investment model. This change reflects an increasing awareness within the industry of the returns on investment that can be achieved through the purchase and rollup of existing, successful firms.
Long Lake has already closed 670 million of gp commitments in less than two years, which is no small feat. Their winning strategy to make this success story about their amazing work. The company is a leader in HOA consolidations, transforming community management, and improving operational efficiency. Its lightning-fast growth is a testament to the roll-up model’s power in delivering on strategic, business-critical goals.
Khosla Ventures appears to be taking a different approach, partnering with the PE-style firm to help with potential acquisitions. As Samir Kaul, a general partner at Khosla Ventures, recently wrote, this collaboration is crucial. It will allow them to identify profitable opportunities without the need to develop an internal staff.
“The companies we’re looking at are very unlikely to lose money,” – Samir Kaul
Kaul’s confidence in the selected investments represents a large and growing trend among venture capitalists. They want to put together portfolios that will stand up to volatile market environments. I’m humbled by the responsibility of managing capital for investors, which he echoes when he says,
“My biggest stress in life is I’m managing other people’s money, and I want to make sure that I continue to be a good steward of it.” – Samir Kaul
If these firms are successful with their continued experimentation with the roll-up strategy, they are well positioned to change the nature of the power dynamics in venture capital forever. Pulling in private equity operating practices to the venture funding side could foster a sharper focus on stewarding the resources. Meeting this new challenge will drive smarter investments with greater strategies.
