Most founders I meet operate under a dangerous misconception: they believe the primary difference between Growth Equity and Private Equity (Buyout) is the size of the check. They assume that if they need $20M, it's Growth, and if they're selling for $100M, it's a Buyout.
This is mathematically and structurally wrong. And getting it wrong is the fastest way to end up with a boss you didn't hire, running a playbook you didn't agree to.
The distinction isn't capital; it's control and trajectory. In 2025, the lines have blurred, but the governance models remain starkly different. When you sign a term sheet, you aren't just capitalizing the business; you are choosing the architectural blueprint for your next 5.8 years (the current median hold period). You are deciding whether you want a partner who sits on your board and asks, "How can we help you grow faster?" or a boss who controls the board and asks, "Why is EBITDA margin off by 200 basis points?"
Here is the hard truth most investment bankers won't tell you until it's too late: Your growth rate dictates your capital partners, not your preference.
If you are a "Scaling Sarah"—stuck at $20M ARR with flatlining growth—you are likely not a Growth Equity candidate, no matter how much you want to stay in control. You are a Buyout candidate. And that requires a completely different exit readiness mindset.
Let's look at the numbers. We analyzed 2024-2025 private market data to quantify exactly what you are signing up for.
In a Buyout, you are selling control. 2025 data shows the median hold period has dropped to 5.8 years, down from a high of 7 years. This means the clock starts ticking the second the wire hits. You have roughly 20 quarters to double or triple the enterprise value. In Growth Equity, the timeline is often more flexible, but the pressure to maintain 30-40% growth is relentless.
Founders often hold out for a "Strategic Acquirer" (e.g., Salesforce, Oracle) believing they pay massive premiums. The data suggests otherwise. Excluding outliers, strategic acquirers in 2024 paid an average of 9.7x revenue, while Private Equity paid 9.2x. The "Strategic Premium" has largely evaporated. Unless you are a unicorn AI target, PE is likely your most competitive bidder.
You cannot cash out completely. In 2024, 57% of mid-market deals required founder rollover equity, typically ranging from 12.5% to 25%. This is your "skin in the game."
If you sell to a Buyout firm, you are rolling that 20% into a minority position in a company you used to own. If the firm loads the company with debt (often 50-70% of the purchase price), your equity sits behind that debt. If the company fails to grow or service that debt, your 20% can go to zero. This is why surviving your first PE partner requires understanding the capital stack, not just the valuation headline.
Your valuation multiple is directly tied to your efficiency. Rule of 40 performance is no longer optional. Data shows that SaaS companies with Net Revenue Retention (NRR) above 120% commanded a median revenue multiple of 11.7x, compared to the industry median of just 5.6x. If you want the high multiple, fix your churn before you go to market.
Before you engage an investment banker, conduct an honest diagnostic of your business.
You fit if: You are growing >30% YoY. You have a clear path to $50M+ ARR. You are cash-constrained but operationally sound.
The Trade-off: You keep control (usually owning 60-80%), but you accept "negative control" provisions (investors can block a sale, block a budget, or veto a hire). The expectation is pure growth. If you miss growth targets, the terms often allow them to layer in structure that dilutes you heavily.
You fit if: You are growing 10-25%. You have high margins (20%+ EBITDA) or a path to get there. You are tired of the "hero heroics" required to keep the lights on and want to de-risk your personal net worth.
The Trade-off: You become an employee (CEO) of the HoldCo. You get significant cash up front (70-80% of value). You gain a sophisticated financial partner who can help with M&A and operational integration. But make no mistake: if you miss your numbers for two quarters, you can be fired from the company you founded.
Many founders choose Buyout specifically for the "Second Bite of the Apple." The logic: Sell 80% now for $40M. Roll 20% ($10M). Grow the company 3x in 5 years. Sell the remaining 20% for $30M.
It is a sound strategy if you execute. But execution in a PE-backed environment isn't about gut feel; it's about rigorous board reporting and predictable data.
Final advice: Don't optimize for the highest valuation. Optimize for the governance structure you can live with. A 10x multiple with a partner who fires you in Month 6 is worth less than an 8x multiple with a partner who helps you build a legacy.
