Distressed Venture Acquisitions

Jeremy discusses an opportunity in acquiring venture-backed companies that are fundamentally sound businesses but have problematic cap tables due to over-raising during 2020-2021. These companies are undervalued despite having healthy operations because their capital structure doesn't work for current stakeholders.

Key Points:

• Target Company Profile:

  • $10M+ revenue companies
  • Growing 30% annually
  • Raised too much money ($40-50M)
  • Founders own small equity (around 10%)
  • High preference stack making exits unattractive for current stakeholders

• Why These Deals Work:

  • Venture investors aren't motivated because returns won't move the needle for their fund
  • Founders aren't incentivized due to small equity ownership
  • Companies are fundamentally sound but have broken cap tables
  • Can restructure to create better alignment
    • Example: Convert founder from 10% to 30% ownership
    • Allow company to be run profitably

• Value Creation Opportunity:

  • Restructure cap table to align incentives
  • Transform from venture growth model to profitable operation
  • Create win-win scenarios:
    • VCs can exit non-core assets
    • Founders get meaningful ownership
    • Buyers get good businesses at attractive prices

• Why Now:

  • Many companies over-raised in 2020-2021
  • VCs need to resolve non-performing assets
  • Creates special situation opportunities for buyers