Hi, it’s Thomas from Positive Capital, M&A advisory dedicated to VC-backed companies.
Today, I’m sharing what I've been watching from both sides of the table — the move from minority growth to growth buyout, and what it changes in how sub-scale assets get underwritten.
Something has changed in the European growth equity market over the last three years.
The word “growth” used to imply a fairly specific type of deal. A company had already found a strong trajectory. The product was working, the market was pulling, and the main question was how much capital could help accelerate what was already happening.
That version still exists, but it is no longer the only one.
A lot of what now gets discussed under the growth equity umbrella looks much closer to growth buyout: majority control, a five-year transformation plan, and an asset that is not necessarily in autonomous hyper-growth at entry.
I have seen it from both sides of the table: sell-side, with founders running processes that ended in this type of deal, and buy-side, with funds trying to understand whether the asset could support the underwriting.
The underwriting itself is quite specific.
A growth buyout fund is often trying to build conviction around a company that can go from around €10m to €50m ARR over five years, while moving toward 20–30% EBITDA margins.
Going from €10m to €50m ARR in five years requires roughly 40% annual growth, but because growth tends to slow as companies scale, investors generally look for businesses already growing well above that level — often 60%+ at around €10m ARR — with enough operational leverage to sustain the trajectory even as growth naturally decelerates.
A company at €10m ARR growing 60% will naturally attract more attention than a company of the same size growing 20%, simply because the path to the target outcome is easier to model.
Seeing how these deals are actually assessed and structured is what I want to share here.
A few metrics matter more than others when underwriting these deals:
ARPA
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A blended ARPA can hide two very different customer populations: one core segment with strong economics, and a long tail of smaller customers with weaker expansion, weaker retention, and a heavier servicing burden.
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Proper segmentation often reveals that the overall growth rate is masking a much stronger ICP, with better retention, stronger expansion, and lower commercial effort required to serve. ARPA Growth
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ARPA growth shows whether existing customers become more valuable over time, or whether growth depends entirely on acquiring new logos.
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A company with flat ARPA must recreate growth every year through additional sales effort, while a company with expanding ARPA benefits from built-in compounding within its customer base. NRR
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NRR answers a similar question from a different angle: is the existing customer base contributing meaningfully to growth, or is all growth coming from new customer acquisition?
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For a growth buyout fund, this is not just a SaaS metric; it directly affects how much new ARR must be generated each year to support the investment plan. ARR per FTE
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ARR per FTE is one of the clearest indicators of whether the operating model can support the margin profile being underwritten.
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In SaaS, personnel costs typically represent the majority of operating expenses. At roughly €100k ARR per FTE, reaching 25–30% EBITDA margins is difficult. Around €200k, the economics start to work. At €300k, the path becomes much more comfortable. When these metrics converge within the same customer segment, the company may not be as slow as the headline growth rate suggests. Instead, it may simply not yet be fully refocused around the part of the business that works best.
A refocused trajectory may take the company from €10m to €20–25m ARR. That can be a strong outcome, but it still falls short of the scale required to support a broader growth buyout case.
This is where M&A becomes central.
In the situations I am increasingly seeing, M&A is not just there to make the upside case look larger. It becomes the mechanism that makes the equity story possible.
The fund is effectively underwriting a company that does not yet fully look like the platform it needs to become.
That requires a different kind of conviction.
The work is not just to identify a fragmented market. The fragmentation slide only matters if the company can actually source targets, close deals, integrate them, and use those acquisitions to change its scale and strategic profile.
The underwriting sits in the details:
- Which adjacencies are real.
- Which targets are reachable.
- Whether acquired ARR can improve the mix rather than just add revenue.
- Whether the management team can integrate without breaking the organic business.
- Whether the product can absorb adjacent assets.
- Whether the story remains coherent enough that the next buyer can underwrite the platform, not just the original company. This is where some growth buyout funds are starting to build their edge.
They are not simply paying for visible growth. They are trying to help create growth through consolidation.
And in a European software market full of good but sub-scale companies, this may be one of the places where alpha is moving.
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