The Problem of Swimming With the Big Fishes
Their scraps aren't necessarily nutritious.
The Investment Food Chain
Bloomberg's Matt Levine writes that, when arranging equity financing, privately held businesses prefer those investors with the deepest pockets: venture capital firms, private equity funds, and corporate buyers. For simplicity's sake, better to have several buyers than several dozen, and better yet to have only one.
Effectively, then, the largest institutional investors have the right of first refusal. Companies seeking capital will begin by knocking on their doors. If the giants like what they see, they will make an offer. If not, the companies will move down the wealth ladder, pitching smaller institutions and/or family offices. If that doesn't work, then the companies will drop another notch, to the private equity buyer of last resort: the everyday wealth.
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