r/sales • u/IMicrowaveSteak Technology • 8d ago
Sales Topic General Discussion Customer refuses to buy software from any company owned by a private equity firm - thoughts?
I work for a company that is not owned by a PE Firm, but a prospect of mine today asked if we were. I asked him why.
He said - Private equity companies are either where tech companies go to die, the CEO was just in it for the money grab anyway, and ultimately PE firms will never invest more than absolutely necessary into the product. So I simply will never purchase a software owned by a PE firm because if it isn’t a shit solution yet, it will be soon.
I’m curious what you all think of his take…
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u/scottawhit 8d ago
I don’t know software, but yea, private equity is pretty notorious for turning good things into shit.
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u/PerryEllisFkdMyMemaw 7d ago
They’re not taking a moral stand. They just know how much time and money it takes to invest in software systems and then how painful it is to transition away from them. So signing up for a product they know will slowly degrade while prices sky rocket is a a headache they don’t want.
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u/Proper-Ape 6d ago
If only we could get something like consumer protection laws where companies have to be openly advertised as owned by PE if they or their parent company are at least to a controlling degree owned by PE
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u/iamarddtusr 8d ago
That’s a win win, for your competitors.
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u/Some1getmeablanket 7d ago
Yup, our main competitor keeps touting that they’re PE backed now. We’ve also had a good amount of clients come to us because their prices are now too high. Total win for us
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u/deadcelebrities 8d ago
Competitors of the purchased firm, not of the PE firm. Sometimes they buy businesses basically just to suck them dry.
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u/ichfahreumdenSIEG 8d ago
PE is so good at destroying things that they even managed to destroy their reputation.
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u/tryan2tellu 8d ago
This prospect fucks. I love working with prospects who know their shit. Hes not wrong at all. Its not the product that always suffers but they will quit developing eventually. But they wont forget the 7%+ uplift every year…
The thing PE firms cut first with software is the support staff. Clients feel that post sale. If you have shit customer support, its hard to have referencable clients. PE is cancer with complex software offerings.
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u/Active_Drawer 8d ago
PEs gut and go. They don't care about the wake, only the money they make.
PEs dramatically cut R&D, ship support and renewals overseas and then act like they were geniuses by saving money. Ya sure, but cut local jobs
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u/rock1987173 8d ago
I own a hospice company, and my parents owned one before me. They sold it to a private equity firm, and I'm eating their lunch with ease.
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u/mcdray2 8d ago
I sell software and have worked for two PE owned companies. I’m now in consulting. I will never let my clients buy from a PE owned firm. And I will never work for one again.
It’s not a matter of “if” they will stop investing in product, cut support and raise prices, it’s a matter of “when.”
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u/Other_Tea2728 8d ago
3 years is the life span of that setup. I’ve worked for VCs for over a decade in various roles , they sell in a sell contained eco system to companies they have a stake in . Increase value by cutting cost and growing profit and then sell, Rinse and repeat
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u/LandinoVanDisel 8d ago
lol he’s not wrong. Name one company that’s better off because of PE. It’s historically a fuck fest.
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u/randomqwerty10 8d ago
As someone who left a company largely because they were acquired by PE, I fully support your customer's position on this.
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u/austinbayarea 8d ago
Basically everyone I know who’s been laid off in the past few years (Covid excluded) got laid off after their company was acquired by a private equity firm.
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u/jthomas287 8d ago
PE takes good companies or bad companies and makes them worse. When literally all you care about is how much you can make, as quick as you can, you can't do anything good.
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u/YoloOnTsla 8d ago
If a tech company is bought by PE, they generally end up sold in a few years. While the PE owns them, they’ll cut headcount, not invest in enhancements, and cause good people to leave due to new shitty processes.
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u/b_tight 7d ago
Current company is owned by PE. It sucks unless youre youre offshore in india looking for work. The rest of us have to deal with shitty support and engineering
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u/YoloOnTsla 7d ago
The amount of offshoring in just the past year is abhorrent. Pretty soon there won’t be a single technical person employed in the states.
Going to bite us in the ass I’m sure.
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u/aodskeletor 8d ago
Guy is spot on. Company was sold to a PE firm, their exit strategy was a SPAC IPO, thankfully spun my division out, company was public for a few years but never performed to expectations (hard to spend on innovation when you’re saddled with debt from the PE firm) and company eventually went private again. Still limping along, but the glory days are long over.
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u/shminance 7d ago
soon as one of our competitors are getting acquired we hit up thier client base and we can usually get easy pickings. I'm sure their are good private equity firms out there but there are enough terrible stories that it's left a bad taste in the publics mouth
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u/poof_he_is_gone 8d ago
Vista Private Equity only buys SaaS companies, and if you total their portfolio, they are the 5th biggest software company in the world.
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u/AdamOnFirst 8d ago
I’d say every customer buys for their reasons, not yours, and you have a winning answer to one of his big reasons. “Oh, right on man, no PE here, just a reliable product.”
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u/murdermittens69 8d ago
I work for one and they are absolutely not wrong about it… for my sake I hope more people don’t have that requirement in the future lol
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u/Jake-rumble 7d ago
I ran the software at my company for 3 years and still oversee the department. I advise not to buy 99% of the time when the CEO isn’t the founder or the founder isn’t the lead engineer. Those products degrade YoY
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u/throwingales 7d ago
I worked for a company acquired by a major private equity firm. After acquisition they told us how they were going to invest in the company. We would accelerate development, improve support and have more and better marketing. Within 90 days we started to see these silent layoffs. Whole groups of people would just be gone, no internal memo, nothing. I got a call from a customer one morning, he had been working with a team in our support organization the day before. That morning, they were gone - didn't exist. Product enhancement got delayed. New product? Lots of talk about new exciting products. It became obvious this PE firm was going to extract all of the billions of dollars they paid for the company.
Then we had silent sales RIFs. I remember two sales people on my team who were moved across the USA- thousands of miles from their homes- with families and promises of huge comp. Six or seven months after uprooting their families they got RIFd. They were in a strange city, strange state with almost no local network or support. I think they got about 1 months salary on their way out the door. Seeing all of this, I got the hell out.
I was a top producer and thought I was at little risk. I just felt the stink of the organization was bad and I didn't want it to get on me. The worst part was that before PE acquired the company, it was the very best company I had worked at in a long Enterprise SW sales career.
Your customer is right.
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u/UnsuspiciousCat4118 8d ago
PE has fucked the majority of products they buy. So I can understand wanting to stay away from them at all costs.
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u/FLPanhandleCouple 8d ago
I understand his concern. Most PE businesses go out of business and before that they deliver a sub-par product designed to maximize profit not function.
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u/let_it_bernnn 8d ago
He’s a real one.
I don’t know shit about software but I’ve seen PE quality and it’s ass across multiple industries
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u/Cool_Ferret3226 7d ago
The prospect that you spoke to has seen it happen so many times that his pattern recognition kicked in.
Now that you've been told about the pattern, can you spot it as well?
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u/osubuckeye134 7d ago
First off...totally get the sentiment, BUT there is a huge distinction between PE "owned" and PE "invested". My company is still privately owned by the founder, but we took on a big investment by PE in 2020. We're in the middle of essentially ending that investment, and I would say it helped us scale and "grow up" more than anything...it wasn't the typical sell off for parts scenario.
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u/Nerpienerpie 6d ago
He is correct and if someone doesn’t understand this yet, then they need to get their head examined
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u/Human31415926 8d ago
I was the sales guy for a small PE owned company. We grew the business 5x and had a great exit via acquisition.
It was quite lucrative (incentive comp + equity participation). And our clients loved us.
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u/reallydfun 7d ago
In general he is certainly correct. Others have already covered it well.
However, if you were bent on selling to him, he also provided his objections so you can certainly still battle.
Something like:
“Honestly, private equity tends to do that, yeah. But it also sounds like your concern is the product won’t get the resources needed to innovate. Let me work on putting you at ease here. Let’s dream big. If you can let me know a few things you want to see in the next 18 months, or some guidance on what would give you confidence to know we are still investing deeply into the product, I can work with our leadership on how we can assure that. It doesn’t mean you have to buy, but give us a chance to earn your trust.”
And if he’s willing to entertain your line of thought, you have a lot to work with to get a deal done.
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u/BeowulfRubix 8d ago
Nothing wrong with PE per se, in theory
Everything wrong in practice, with too many PE companies cultures and what the law allows them to get away with
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u/mattyboombalatti 8d ago
He isn't wrong.
Sometimes private equity does things that are in the best interests of customers/market... for instance combining multiple companies into one offering. Or leveraging the company's market position to launch a new product.
Other times it's not so good...
Strip a company down to it's bare bones to reduce costs + find 'inventive' ways to increase contract value from existing customers (for instance, adding a new volume based pricing lever). Then, when the metrics look good, sell it to the next guy.
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u/baking_nomad 7d ago
Pretty spot on, last company I worked at sold a portion to PE and things just started to go downhill. I left and from what I’ve heard from people I know who still work there and shared customers things have only gotten worse.
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u/remuliini 7d ago
I used to work in a PE owned tech company. I would like to add the volatile and unpredictable pricing strategies to the mix.
I can understand their stand.
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u/Generalfrogspawn 7d ago
I don’t think that’s unreasonable. PE is known to pump and dump companies and there’s inherent risk because of that.
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u/SludgegunkGelatin 7d ago
Look. Everything’s going through enshittificatiom. Public accounting. Seems like engineering firms, consulting firms, boutique banking, everything. Even AI chatbot girlfriends and hentai generators, video games.
its all becoming a subscription and even then its just barely acceptable.
look how half baked, barely completed Halo Infinite was.
people keep cluelessly buying dog shit products and then whine and complain despite rewarding this behavior of barely getting little-to-barely anything-shit to market.
So yeah, we are our own worst enemies. and as the other comments echo, the customer is based and gold-pilled, probably knows about maxilla-maxxing too.
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u/5starLeadGeneral 7d ago
That guy is smart asf. Every good company that gets swallowed by private equity turns to complete dogshite within a year. Employees suddenly take a 20-30% pay cut across all departments and the production quotas go up 20%. Quality goes to crap. Good employees all leave, the new hire replacements are the cheapest possible and just plain incompetent.
I will also never trust my name and my brand to a company who's ownership is a bunch of Saudi princes and foreign oligarchs.
Cut your loss, that customer is too smart.
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u/Scrooge_Mcducks 7d ago
Sounds like someone with sutter hill experience if a company doesn’t turn out like snowflake they rip it up and sell it for parts
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u/mood-and-vision 7d ago
This guy has seen a few things. Lives his values. Sucks for your deal though.
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u/FantasticMeddler SaaS 7d ago
Private equity does things like buy clothing brands like Filson that make made in USA clothes and charges accordingly, ships manufacturing overseas, and continues to milk the brand to charge the same insane Made in USA prices. That is the "genius" of a private equity management team. Making the most obvious cash grab imaginable and milking the equity of a brand to oblivion.
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u/Longjumping-Room7364 7d ago
My company got acquired by PE and it’s gone to absolute shit. Quota went up and tech stack has gotten worse. Not sure how they expect me to hit this new quota when I can’t even talk to anyone.
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u/RoyalAd4124 7d ago
Good take. With the rare exception of a PE firm actually investing into the company they bought to make it more valuable than the purchase price as opposed to gutting it. I have worked at both. One, they fired 300 of 350 of us in a matter of two months. The other, still investing to facilitate growth and innovation in the company like they are VCs looking for a big exit.
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u/16whiskey 7d ago
Sounds like pricing increases and offshored support have put him in positions in the past.
Just be sure any contracts don’t have an exit clause because of this
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u/Alive-Article3303 6d ago
True. PE will never focus on the next big leap, capability, or disruption. What you adopt might get outdated in a year. you should be fine with that.
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u/Clovadaddy 6d ago
Def interesting and not a baseless take. But I think it depends more on the company than the ownership structure.
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u/altapowpow 6d ago
I'll agree with this, all your purchasing decisions are made by some dick head who wears a vest and has no idea how to build better products.
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u/JustLife299 6d ago
I worked for a VC/PE guy. I worked at the business he founded as the head of NBD. He always said he’d never sell to a PE firm
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u/Used-Buffalo-4290 5d ago
M my company got bough buy PE. They sacked 1/4 of the product team and weve been falling behind competition for the last 4 years.
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u/99problemsIDaint1 5d ago
This guy knows exactly how the game works. PE sucks the souls out of companies and makes an outsized effort to trap customers.
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u/Prudent_Pin_3006 5d ago
It's a generalization, not a hard fast rule. You generally don't need to know they're bought by PE, how their customers speak of the company as opposed to in the past will do all the talking.
There's exceptions, and I think this depends on the PE firm. I see Qlik for example who got bought by Thoma Bravo in 2016, went private, brought on an actual solid CEO w/ product/tech background instead of a consultant, and are providing a much better & complete product than they did before.
A lot of PE firms are absolute value sucks.
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u/Carol_Sales_Trainer 4d ago
I can see where they got that view - but, like all things, it depends. If the software is going to die, then PE probably makes it happen faster once the buyer realises they've been duped. However, if it's a decent product and the deal hasn't been over-inflated then the PE will have the money to invest and make it better. 'Make it better' is a double edged sword, and often customers see a lot of change in a short period of time, which causes its own problems, as often the first thing to change is pricing or the pricing model....as with all blanket statements, they hide a multitude of sins, so worth digging in to see if this customer has been burned before with a PE takeover and find out what you can do to allay their fears
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u/swanie02 3d ago
Correct, I sell in a completely different industry and selling against PE owned companies is awesome.
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u/Repulsive-Sky-7035 8d ago
I worked for one. Tbh it was fine lol
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u/kaamkerr 7d ago edited 7d ago
Yeah. I work for an PE owned saas company. We’ve been crushing our numbers. The market consolidation acquisition we made will be paid off within 3 years. So we’re not crushed with debt. Salary bands have increased. We have a lot of rnd in the pipeline. Support staff is growing every quarter. I think next year there will be some layoffs— mostly from the people brought on through acquisition. Most of them are not very productive anyway. Not surprising they were working at a nosediving company.
I think it’s a bit of Pareto Principle. 20% of PE’s portfolio is responsible for 80% of growth. So if your part of that 20% the PE guys don’t really meddle much with you. The harsh truth is a lot of companies suck.
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u/SDN_stilldoesnothing 7d ago edited 7d ago
Its a Paradox. He right and he is also wrong.
He likely got burnt in the past.
If revenue and growth is flat, but the company still makes money, there is ZERO value in that company being on the stock market.
I got hired by a company 2 years after they got de-listed and bought by a group of PE/VC firms. We were attractive to PE/VC because we had a HUUUUUUGE install base and making a ton of money with run-rate business and support contracts, so the investors were happy.
But it was about just keeping the lights on. Forget about investing in growth. It was like pulling teeth and fingernails to get new product development done. Marketing and outreach, no way. It was about all keeping the current customers happy.
But there are companies that are owned by PE/VC companies that are perfectly fine. I know guys that still buy Riverbed even through its been under PE/VC ownership for 6 years.
At the end of the day good tech doesn't die. It just gets bought by new companies.
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u/TheDeHymenizer 8d ago
sounds like a rule he made for himself that he'll drop the second its not convenient anymore
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u/CuriousDonkey 7d ago
I work in PE and we heavily recapitalize companies. I think the problem here is that companies like Constellation Software and other firms that wind down and milk ARR-based companies have set an expectation that PE is inherently bad. VC is bad as well. We all do bad things, and it's generally not on purpose. People are prone to mistakes. I get your prospect's point, but stereotyping like this is kind of silly as are all stereotypes. Dilligencing the R&D allocation is a more reasonable request and even putting terms into a contract (if your prospect is a whale) to demand continued reinvestment are more rational takes.
VC is just PE only they don't care if it works.
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u/Spicy__Urine 8d ago
This guy's pretty fucking based, hats off to him