Startup Takes Private-Equity Approach to Advance Crypto

 

The Private-Equity (PE) approach is a business strategy centered on acquiring and actively managing a private company, or taking a public company private, with the goal of increasing its value and selling it for a substantial profit within a typical 3 to 10-year timeframe.

 

This "buy low, grow fast, sell high" model is built on active, hands-on management to drive operational and financial improvements.

 

Key characteristics

 

    Active ownership: Unlike passive stock market investors, PE firms take a controlling interest in companies and get heavily involved in strategic and operational decisions to drive growth.

    Use of leverage: PE firms frequently use leveraged buyouts (LBOs), financing a large portion of the purchase price with debt. The acquired company's assets and cash flow are used to secure and repay this debt, which magnifies the potential returns for the firm's equity.

    Value creation focus: The primary goal is to fundamentally improve the company's value, not just trade it based on market fluctuations. This is achieved through cost optimization, operational streamlining, strategic growth initiatives, and talent upgrades.

    Long-term horizon: The investment period is relatively long, typically lasting several years, to allow enough time for the PE firm to implement its strategy and effect significant change.

    Exit strategy: From the moment of acquisition, the firm develops an exit strategy, which could be a sale to another company, a secondary buyout by another PE firm, or an initial public offering (IPO).

    Access to capital: PE firms pool funds from limited partners, such as institutional investors and high-net-worth individuals, which provides target companies with a large capital infusion that may be unavailable through traditional financing.

 

Stages of the private-equity approach

 

    Fundraising: The PE firm, or general partner (GP), raises a fund from limited partners (LPs), which can include pension funds, university endowments, and wealthy individuals.

   

    Deal sourcing: The firm's deal team actively searches for potential investment opportunities that align with its specific strategy and investment criteria. This involves screening for financial health, market position, and growth potential.

    Due diligence: A comprehensive investigation of the target company is performed. This intensive process examines financials, operations, legal aspects, and the market landscape to confirm its viability and identify opportunities for improvement.

    Acquisition: If the due diligence is successful, the PE firm finalizes the deal by negotiating the transaction and securing the necessary debt and equity financing.

    Value creation: After the acquisition, the PE firm actively manages the company to drive performance improvements. It may involve operational enhancements, strategic expansion, cost optimization, or strengthening the management team.

    Exit planning: Once the firm believes it has maximized the company's value, it executes its planned exit strategy, such as selling the company to another entity or taking it public, to realize returns for its investors.

 

Common strategies used

 

    Leveraged buyouts (LBOs): Acquiring mature, stable companies using a significant amount of debt, with the intent to improve operations and pay down debt using the company's cash flow.

    Growth equity: Investing in established, fast-growing companies that need capital to scale, without seeking a controlling interest. In this case, the PE firm acts more as a strategic partner.

    Venture capital (VC): Investing in early-stage startups with high growth potential but often unproven business models. This is a higher-risk, high-reward strategy.

    Distressed investing: Acquiring companies that are in financial trouble, with the aim of turning them around through restructuring.

    Buy-and-build: Acquiring a "platform" company in a fragmented industry and then purchasing smaller, complementary companies to consolidate and achieve economies of scale.

 

 

 

 

 

“Crypto die-hards have long said that if only more legacy businesses adopted the technology, its benefits would become clear and adoption would spread. A new startup's private-equity-style game plan aims to make that a reality.

 

New York-based Inversion Labs plans to acquire low-margin companies, outfit them with blockchain to juice efficiency and then reap the profits that follow.

 

Founded at the beginning of this year, the company has raised a $26.5 million seed round at a $100 million valuation led by crypto-focused venture firm Dragonfly Capital. Investors including investment-management firm VanEck and crypto venture firms ParaFi Capital, Faction Ventures and Wintermute Ventures participated in the financing.

 

"This technology is powerful, but the reality is crypto doesn't have that many active users," Inversion co-founder and Chief Executive Santiago Roel Santos said. "Our North Star is to make crypto invisible to our users. They won't see how the technology works, but they'll feel the impact. It's going to be faster, better and cheaper."

 

The capital raised by Inversion will be used to fund Inversion's business operations, not to make acquisitions. To finance the acquisitions, Inversion will raise a fund of at least $500 million held in a separate entity called Inversion Capital, Roel Santos said.

 

Institutional investors have demonstrated early interest in committing capital to finance Inversion's acquisitions, co-founder and Chief Operating Officer Suzanne Dannheim said, in part because their model offers crypto exposure that is less risky than holding coins or investing in crypto businesses.

 

Beyond its role as an investor in Inversion Labs, VanEck will act in various roles related to fundraising and administrative management, Dannheim said.

 

Inversion will target both private and public companies with large user bases that have internal infrastructure they believe is ripe for a blockchain overhaul, Dannheim said.

 

Inversion has initially targeted South American telecommunications companies and has submitted several acquisition bids. Blockchain could allow these companies to lower their data purchasing costs, among other improvements, Dannheim said.

 

The pair said they could also seek to acquire payroll service providers, supply chain-related businesses and consumer financial services providers. They hope to make their first purchase within the next year.

 

Inversion's business plan combines the classic private-equity model of acquiring and overhauling businesses with a so-called roll-up strategy, where companies buy smaller firms within a sector and "roll up" their technology to create a single, more valuable entity.

 

Roll-up deals involving technology startups focused on overhauling companies with AI have become popular in the venture sector.

 

---

 

Marc Vartabedian is a writer for WSJ Pro Venture Capital.” [1]

 

1. Startup Takes Private-Equity Approach to Advance Crypto. Vartabedian, Marc.  Wall Street Journal, Eastern edition; New York, N.Y.. 09 Sep 2025: B10.