The Private Equity Podcast, by Raw Selection

Welcome back to The Private Equity Podcast, by Raw Selection! In this episode, Alex Rawlings is joined by Richard Brekka, Managing Partner and Co-Founder of Second Alpha. Richard dives deep into the explosive growth of the secondaries market, explaining how his firm provides liquidity to shareholders of private tech companies. The pair discuss the rise of secondary funds, why more companies are staying private longer, and the unique opportunities in the market for smaller, profitable tech companies.

Breakdown:

[00:00] Introduction to Richard Brekka, Managing Partner and Co-Founder of Second Alpha.

[00:12] Richard explains the secondary market's growth and why 90% of it is in unicorn companies.

[01:10] Richard’s background and how he got into secondary investing after working in venture capital.

[01:37] The common mistake of holding on to investments too long and the importance of realizing value sooner.

[02:05] Richard explains the two types of secondary markets: fund secondaries and direct secondaries.

[02:58] Growth in secondary funds driven by a lack of liquidity for GPs and the emergence of unicorn companies staying private longer.

[03:58] Richard shares why 90% of transactions in the secondary market are focused on unicorn companies.

[05:25] Discussion on the $2.3 trillion unicorn market and the trillion-dollar opportunity in companies valued between $100 million and $1 billion.

[06:21] How Second Alpha identifies companies for investment by targeting profitable, growing companies over $100 million in revenue.

[07:50] Second Alpha’s approach to providing liquidity to shareholders and building long-term relationships with CEOs.

[08:49] Richard discusses the various reasons shareholders seek liquidity, from personal financial needs to new business investments.

[10:12] The value Second Alpha provides to CEOs and how they become a trusted partner in helping companies toward their exit.

[11:00] Richard explains the challenges of accessing private companies for investment and how Second Alpha overcomes these obstacles.

[11:58] The importance of building trust with CEOs and navigating rights of first refusal in secondary deals.

[13:26] Second Alpha’s role as a helpful partner to the CEOs, offering introductions, advice, and exit planning support.

[14:53] Challenges private companies face after 10 years of growth, including management changes and adapting to market shifts.

[16:22] How companies must pivot and develop new products to continue growing and reach their next phase of success.

[17:20] Second Alpha’s focus on North American technology companies with strong revenue and profitability.

[18:46] The advantage of investing in growth-stage companies at a discount through secondary transactions.

[20:39] The role of artificial intelligence and cloud technologies in transforming industries and the efficiency opportunities they bring.

[22:32] Second Alpha’s focus on disrupting industries like data analytics and finding efficiencies in cloud infrastructure.

You can connect with Richard Brekka on LinkedIn by visiting his profile here.

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