Exits & Liquidity
Last updated
Quick Answer
An acquisition financed primarily with debt, where the target company's assets and cash flows secure the borrowed funds.
LBOs use significant borrowed money (typically 60-90% of purchase price) to acquire a company, with the target's assets and future cash flows serving as collateral. While more common in private equity, LBOs occasionally intersect with venture when mature startups are taken private.
In Practice
The PE firm acquired the $500M revenue SaaS company for $3B, financing $2B with debt. The company's predictable recurring revenue easily covered the debt service payments.
Why It Matters
Understanding LBOs helps founders and employees understand one potential exit path, especially for profitable, cash-flow-positive late-stage companies.
VC Beast Take
LBOs are the private equity world's signature move. For VC-backed companies that grow into profitable businesses, it's often a more realistic exit than IPO.
LBOs use significant borrowed money (typically 60-90% of purchase price) to acquire a company, with the target's assets and future cash flows serving as collateral. While more common in private equity, LBOs occasionally intersect with venture when mature startups are taken private.
Understanding Leverage Buyout (LBO) is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Leverage Buyout (LBO) falls under the exits category in venture capital. This area covers concepts related to how investors and founders realize returns on their investments.
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