Distressed Investing
In public markets and the private equity world the term “distressed investor” is quite common and widely understood. A typical investment object is distressed debt where hedge funds by debt of struggling companies at a steep discount (“pennies on the dollar”) and hope to profit from a turnaround.
Distressed Private Equity (also called “Special Situations” or “Turnaround”) is not just about hoping to profit from a turnaround but actively managing the turnaround in an operating capacity.
In Venture Capital however the term “Distressed” has not been in use. One reason might be that by nature any startup is “distressed”. Gilbert et al. (1990) characterize financial distress by negative cumulative earnings over at least a few consecutive years, losses, and poor performance. At least the first two clearly hold true for startups.
Distressed Venture Capital
We think about Distressed Venture Capital as a situation where traditional VCs shy away from investing further because the risk-return-profile does not meet their requirements. The most common characteristic of these distressed startups is slower than expected growth. But there can be other reasons too why traditional VCs do not make further investments, e.g. the total addressable market (TAM) turns out to be smaller than expected, there are changes in the founder team, or the market entry of heavily funded competitors.
Our approach
We believe that under certain circumstances distressed VC-backed startups can be a great investment. This is when we enter and
buy out incumbent shareholders to acquire a majority stake of the startup,
recapitalize the venture to have a solid financial foundation,
and restructure it to build a profitable SME with long-term prospects.
Hence, we are a secondary distressed venture capital investor and combine the best performing investment strategies of the last two decades. Just like in Private Equity, a core part of our work is a strategy adjustment and heavy operational involvement while traditional VCs act more like mentors.
Distressed Venture Capital is a form of growth capital — not for blitz-scaling but for maintaining a healthy growth path and achieving profitability.
Established in 2019 we plan to make 2-3 acquisitions per year.
Our difference
