Lawyer Brian Lenihan got his start in the tech world during the dot-com bubble, he recalled, “doing typical venture capital transactions.”
Before long, Lenihan was getting bored with these types of deals. At the same time, as the 2000s began, his clients were “starting to mature, in terms of their looking at larger and larger deals.”
“I was looking to go beyond the venture capital transactional world, which had become very commoditized,” Lenihan said. “I was looking to migrate my practice to a platform that allowed for doing more complicated deals in the technology space, that would include doing leveraged buyouts and recapitalizations and larger transactions.”
Seeking a firm with a well-established private equity practice, Lenihan joined Boston’s Choate Hall & Stewart in 2003, “and it’s been a fun and wild ride.”
Now Lenihan co-chairs that practice and spends most of his time on a type of deal that satisfies his desire for variety: growth equity investments, somewhere between M&A and VC. Targets abound these days, especially in tech, where Lenihan said many companies have managed to become profitable without raising a lot of institutional capital.
“So those companies are very attractive for growth equity investment because they’re already cash-flow positive, usually [a] strong recurring revenue model, very good year-to-year growth,” Lenihan said.
Unlike a typical venture round, in which money is raised solely for a company’s use, a growth equity investment is a kind of hybrid, Lenihan explained, “the proceeds of which are used both for liquidity for stockholders and sometimes for capital on the balance sheet, for acquisitions or other growth needs.”
These investments can unlock value for founders without requiring that they give up their stakes altogether.
“The hope is there’ll be a second bite at the apple,” Lenihan said. “Entrepreneurs partnering with a strong growth equity firm can hopefully, five years down the road, receive additional value,” through a sale or IPO. Lately, growth equity has also been an exit route for certain early-stage VC investors, a trend Lenihan thinks will continue.
While stockholders are interested in reducing their risk, or simply accessing liquidity, for Lenihan the appeal of these transactions is the creativity they call for: “You could have a deal where there’s a client buying a small minority position and there’s only one stockholder selling. Or you could have a deal where a client’s buying a majority position and there are hundreds of stockholders that are getting liquidity, and you need to structure it more like a tender offer.”
He also likes interacting with the founders and entrepreneurs on the other side. “They’re usually high-energy, very driven people who have built something quite successful without a lot of institutional capital. The types of personalities we deal with in these types of transactions are very enjoyable.”
Action Item: Reach Brian Lenihan at +1 617-248-4929 or firstname.lastname@example.org
Photo of Brian Lenihan courtesy of Choate Hall & Stewart