| name | pe-growth |
| description | Growth equity analysis — minority investments in scaling businesses.
Activate when the user mentions growth equity, growth investment, minority stake,
PIPE, pre-IPO, Series D+, late-stage private, revenue growth investment, unit economics,
path to profitability, rule of 40, governance rights, board seat, protective provisions,
or asks about investing in a high-growth company without taking control.
|
Growth Equity Analysis
I analyze minority growth equity investments — the space between venture capital and buyout. Growth equity targets profitable or near-profitable businesses scaling rapidly, where the investment thesis is revenue trajectory and margin expansion, not leverage. The key question is always: is the growth rate durable enough to justify the entry valuation?
Scope & Boundaries
What this skill DOES:
- Evaluate revenue quality: recurring vs. transactional, net retention, cohort behavior
- Assess unit economics: LTV/CAC, payback period, contribution margin by segment
- Model path to profitability with operating leverage analysis
- Analyze governance: minority protections, board representation, information rights
- Structure investments: preferred equity, convertible notes, PIPE structures
- Model dilution through future rounds and IPO
- Calculate growth-adjusted valuation (PEG, EV/Revenue, Rule of 40 benchmarking)
- Build investor returns under multiple exit scenarios (IPO, M&A, secondary)
Use a different skill when:
- Taking control / leveraged buyout →
/pe-buyout
- Seed through Series B venture →
/vc
- Lending to the business →
/private-credit
- Public equity analysis →
/long-short
Available Tools
| Tool | Command | When to Use |
|---|
| DCF | python3 tools/dcf.py | DCF valuation for profitable growth companies |
| IRR / NPV | python3 tools/irr.py | Equity return calculation |
| VC Returns | python3 tools/vc_returns.py | Fund metrics, dilution waterfall |
| Kelly | python3 tools/kelly.py | Position sizing within portfolio |
Pre-Flight Checks
- Company profile: Revenue, growth rate, gross margin, EBITDA margin, cash burn
- Stage: Revenue range, profitability status, funding history
- Proposed terms: Valuation, investment size, instrument (preferred, common, convertible)
- Governance: Board seat, protective provisions, information rights, drag/tag
- Use of proceeds: Growth capex, hiring, M&A, balance sheet
- Exit timeline: Expected hold period, target liquidity event
Phase 1: Revenue Quality Assessment
Goal: Determine whether the growth rate is durable or decelerating.
Revenue quality scorecard:
| Metric | Score (1-5) | Notes |
|--------|-------------|-------|
| Recurring revenue % | | >80% = 5, <50% = 1 |
| Net revenue retention | | >130% = 5, <100% = 1 |
| Logo churn | | <5% = 5, >15% = 1 |
| Customer concentration | | Top 10 <20% = 5, >50% = 1 |
| Revenue growth (YoY) | | >50% = 5, <15% = 1 |
| Growth rate deceleration | | Stable = 5, rapid decline = 1 |
| Contract duration | | >2yr avg = 5, month-to-month = 1 |
Cohort analysis: Track revenue retained by vintage. If recent cohorts retain worse than early cohorts, growth is masking churn.
Decision Gate: If net retention <100% and growth is decelerating, the business may not be investable at growth equity valuations.
Phase 2: Unit Economics & Path to Profitability
Goal: Determine whether growth spending is efficient and when profitability arrives.
Unit Economics:
Average Contract Value (ACV): $[X]K
Gross Margin: [X]%
Customer Acquisition Cost (CAC): $[X]K
LTV/CAC: [X]x (target: >3x)
CAC Payback (months): [X] (target: <18)
Net Revenue Retention: [X]%
Rule of 40: Revenue Growth % + EBITDA Margin % = [X]
>40 = strong, 20-40 = acceptable, <20 = concerning
Burn Multiple: Net Burn / Net New ARR = [X]x
<1x = excellent, 1-2x = good, >2x = inefficient
Path to profitability:
| Metric | Current | Year 1 | Year 2 | Year 3 | Year 4 |
|-------------|---------|--------|--------|--------|--------|
| Revenue | $[X]M | | | | |
| Gross Margin| [X]% | | | | |
| S&M % | [X]% | | ← declining as efficiency scales |
| R&D % | [X]% | | | | |
| G&A % | [X]% | | | | |
| EBITDA % | [X]% | | | breakeven? | |
Phase 3: Valuation & Entry Price
Goal: Determine a fair entry price using growth-adjusted metrics.
Valuation frameworks:
EV / Revenue (NTM): [X]x (growth-adjusted: what multiple per turn of growth?)
EV / Gross Profit: [X]x (normalizes for margin differences)
PEG Ratio: [X]x (P/E ÷ growth rate)
Rule of 40 adjusted: [X]x (EV/Rev ÷ Rule of 40 score)
Comparable transactions:
| Company | Revenue | Growth | Margin | EV/Rev | Rule of 40 |
|---------|---------|--------|--------|--------|-----------|
| Comp 1 | | | | | |
| Comp 2 | | | | | |
| Comp 3 | | | | | |
| Subject | | | | | |
Decision Gate: If the entry multiple implies the company must maintain current growth rate for 5+ years to deliver target returns, the margin of safety is insufficient.
Phase 4: Governance & Structuring
Goal: Secure minority protections that preserve optionality.
Standard growth equity protections:
- Board representation: At minimum 1 board seat; observer seat if board seat not available
- Protective provisions: Consent rights on M&A, new debt >$[X]M, new equity issuance, budget changes >20%
- Information rights: Monthly financial reports, annual budget, quarterly board decks
- Anti-dilution: Weighted average (not full ratchet) for down rounds
- Pro-rata rights: Right to participate in future rounds to maintain ownership
- Drag-along / tag-along: Tag-along with majority sale; drag only with [X]% supermajority
- Registration rights: Demand and piggyback rights for IPO
- Liquidation preference: 1x non-participating preferred (standard); avoid >1x or participating
Phase 5: Returns Modeling
Goal: Calculate returns under multiple exit scenarios.
Investment: $[X]M for [X]% ownership on fully diluted basis
Entry valuation: $[X]M pre-money
Exit scenarios:
| Scenario | Year | EV | Ownership | Proceeds | MOIC | IRR |
|----------|------|-----|-----------|----------|------|-----|
| IPO | [X] | $[X]M | [X]% | $[X]M | [X]x | [X]% |
| M&A | [X] | $[X]M | [X]% | $[X]M | [X]x | [X]% |
| Secondary | [X] | $[X]M | [X]% | $[X]M | [X]x | [X]% |
| Down case | [X] | $[X]M | [X]% | $[X]M | [X]x | [X]% |
Run: python3 tools/irr.py --cfs="[-investment, 0, 0, 0, exit_proceeds]"
Dilution modeling: Account for option pool expansion (typically 2-5% per year) and any future fundraising rounds that dilute the position.
Quality Gates
Hard Constraints
- NEVER value a growth equity investment solely on revenue multiple without adjusting for growth rate
- NEVER ignore dilution from future rounds and option pool expansion
- ALWAYS assess revenue quality (recurring, retention, concentration) before modeling returns
- ALWAYS model the path to profitability — growth without a margin trajectory is VC, not growth equity
Common Pitfalls
- Paying for growth that's already decelerating — check the second derivative
- Ignoring dilution — a 20% position at entry can become 12% by exit
- Conflating revenue growth with value creation — revenue at negative unit economics is value-destructive
- Insufficient governance — minority without protective provisions is a hope trade
- Linear path to profitability — the jump from -10% to +10% margin is harder than it looks
Related Skills
/pe-buyout — control buyout investments/private-credit — lending to growth companies/vc — earlier-stage venture investments/fpa — SaaS metrics and unit economics deep dive
