“The idea is to let a private equity firm buy out the VCs, wipe out all of the preferred stock and convert all shares to common. In this second-stage privatization (of an already private business), the PE firm saves a company from a complicated investing structure. It also saves it from VCs that can eventually have narrow and self-centered financial interests if the company has remained private for a long period.
A handful of companies and PE firms in California say that they’ve discussed the buyout option, but the practice is still relatively rare. That’s usually because founders are reluctant to give up majority control, and an unwieldy group of venture investors all have to jointly agree to the buyout.
This week, however, a software company called Trax Technologies announced such a deal with a private equity firm, Strattam Capital.”
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