"Absurdly" meant as an intensifier rather than a pejorative here; the economics absolutely work out for the PE firms and their LPs. (As to whether they work out for the people selling the software company, "It depends" but I personally have no regrets around selling my companies)
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What does a supply chain look like for software companies? Well, think of how YC/angels pass companies to Series A firms pass them to ... pass them to an IPO. Particularly concentrate on early stages there around e.g. market selection, prototypes, meat-and-potatoes execution.
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If you think that the rate limiter is simply engineering hours, then you'd want the supply chain to all be in-house at a company which you control, where you pay teams of W-2 engineers to ship 8 SaaS companies a year and sell 6 of them in year 3. I bet rate limiter is founders.
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In which case supply chain looks like people identifying would-be founders, staking them with enough money to get the ball rolling, and educating them about exit options at the appropriate time for their circumstances.
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"Sketch the math out for me." You could imagine a hypothetical SaaS company with 1 to 2 co-founders going through ~$100k of living expenses before revenue came in, covering reasonable engineering salaries after 12~18 months, getting to $500k profit on $1.5M ARR in 3~4 years.
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That company is probably worth $2 million to a PE buyer; more if the growth rate looks attractive.
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I worry that we're going to see "PE acquisition" become the new "acquihire" in the sense of "new owners lack founders' vision; time for aware customers to find new options before everything goes downhill".
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It doesn't have to be that way, but I would be very wary of betting on "PE firms can run companies better than domain experts".
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Definitely putting this on discussion list. Have adjacent thing I’m spending real time thinking about. So would be good to discuss Btw this segment is considered by many to be the *most* attractive asset class right now. So if you’re interested in speaking to people on it have
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Some people that’s probably be good people to discuss with Interesting aspect as you point out is figuring out what’s constraining it on the generation or PE side. And lots of potential compounding loops imo there
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