In the last decade, media hype and stories of astronomical exit valuations have broadened the appeal of venture investing, drawing a more diverse group of investors. In our network alone, we have seen a significant increase of both individual and family office investors looking to get involved in the space. While we understand the the desire to gain exposure to the asset class, my partners and I have come to the realisation that the traditional VC model isn't well-suited for the majority of investors.

The reality is that venture investing comes with significant challenges and potential pitfalls that investors often fail to see. At the core of the model, there is a fundamental misalignment of incentives between fund managers and investors. After more than two decades of experience, the following challenges have come to light:

1. Long Time Horizons: In our experience, it takes 8-10 years for a successful VC investment to achieve liquidity. On average, a 2018 US VC Fund returned less than 30% of investors' capital five years later.

2. Multiple Funding Rounds: Venture backed companies typically require continuous injections of capital to fuel their growth. Investors are often asked to commit additional funds or risk dilution of their ownership stake.

3. Misalignment with Control Investors: Exit opportunities can arise within 3-4 years, but majority shareholders are incentivised to hold out for larger returns. These decisions can prove to be fatal misjudgments for companies that fail to follow their anticipated growth trajectory. Minority investors, with a lower risk appetite, often find themselves powerless to influence such situations.

We believe there is a better way. One that aligns the incentives of founders, operators and investors.

For investors exploring this asset class, a Private Equity approach provides a compelling alternative to traditional venture. There are thousands of overlooked, under-optimised software companies with robust business models, proven technology, and high-growth potential. The strategy is simple: Buy It, Fix It, Sell It.

We enable investors to co-invest in these opportunities, resulting in the following benefits:

1. Shorter Time Horizon: Our approach is tailored for a 3-5 year time horizon. The first two years are dedicated to optimising operations and the following three years to optimising the exit. This timeframe reduces the uncertainty associated with extended investments.

2. Single Funding Round: Target companies are already cash flow neutral to positive. Consequently, all the necessary funds to execute our strategy are raised in a single, efficient funding round, minimising the risk of dilution.

3. Alignment with Control Investors: We are an integral part of the investor group that assumes a controlling position in the transaction.

We take pride in providing investors interested in the software sector with a reliable pathway to unlock value. While our approach may not guarantee the extraordinary returns occasionally witnessed in venture investing, it offers something we consider far more potent: consistency and sustainability.

Gordon Fallone

Managing Partner

This memorandum expresses the views of the author as of the date indicated, and such views are subject to change without notice. OPAC has no duty or obligation to update the information contained herein. Furthermore, OPAC makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Additionally, wherever there is the potential for profit, there is also the possibility of loss.

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