The NVCA will announce today the development of its Growth Equity Group, which aims to include VCs with investment strategies focused on later-stage companies.
“We are seeing shared challenges relating to public policy, advocacy and education in later stages,” said Bruce Evans, chair of the new group and managing director with Summit Partners.
Given where we’re at in the IPO pipeline, it sounds like growth equity investors could use a hand too. What’s a growth equity investor? The NVCA classifies it as investing that takes place after late-stage venture, as a startup is approaching maturity.
One of the classification terms used to describe growth equity, according to the NVCA, is “investments [that] are unlevered or use light leverage at purchase.”
No word on what ‘light leverage’ constitutes, but lawmakers that have had a heavy hand for private equity because of the perceived excess of leverage that is used in deals shouldn’t get confused here—this is probably a little more along the lines of the debt that companies like Zendesk take on] when they’re mostly taking on a new cash round.
NVCA President Mark Heesen says the establishment of a new sub-category within the association is aimed at catering better to needs of individual asset classes. It isn’t a welcome mat for private equity firms, however.
The question becomes, with next to no national lobbying arm (although the Small Business Investor Alliance is making a push into PE), would some of the smallest growth-focused LBO shops behoove themselves to try and behave more like VCs, if ever there is a disparity in tax treatment between one asset class and the other? Time will tell.
There is no evidence that venture capitalists would be spared from a carried interest taxation rate increase that would also hit LBO firms. However, if the NVCA is successful in the implementation of a new ‘growth’ focused segment of the asset class—one that is afforded the opportunity to take on a little debt—perhaps this would spur traditional private equity investors to take on a little less leverage for middle market deals. It isn’t like they can get that much leverage in the first place.
But the shift in classification could prevent some middle market LBO shops from having to pay a higher rate of taxation—depending how everything plays out in Washington. For firms that only have the words “private equity” in common with the KKRs of the world, they might finally look to a defender on Capitol Hill.
Image Credit: NVCA