In Good Buyers, I argued that if I sold my company, I don't think I'd want to sell it to a fund.
But most acquirers raise a fund. Why?
Its incentive structure may be imperfect, but it is the cleanest way to solve the capital coordination problem: when the money is already there, all the buyer and seller need to do is agree to terms.
The tradeoff is that funds typically come with built-in timelines. Limited partners need liquidity at some point, and managers are paid to deploy capital… so it's hard to imagine a scenario where assets aren't sold.
Tether is a different structure, where investors participate deal by deal rather than through a pooled vehicle. That means there’s no fund clock, deployment pressure, or portfolio-level covenants that might force our hand on asset sales.
It also means the capital coordination problem is harder - and we have to solve it for every deal rather than just once. This is more work, but it allows the incentives to be set at the company level rather than at the fund level. It also means that the new management's incentives look a lot like the seller's did. Without the management fee, our paychecks come only if the business continues to perform.
We think that this makes it easier for us to deliver on "priorities #2 and #3" from Good Buyers.
For investors, this is also a tradeoff. Why invest in an individual organization, instead of in the (theoretically) lower-risk holding company, or a fund?
There are two reasons the tradeoff might be interesting.
First: the investor gets to cherry-pick their deals. They get to decide yes or no on each opportunity, rather than being locked into a blind pool deployment.
Second: transparency and alignment. When we acquire a company, investors participate at the same terms as we do. It's reasonably easy to make an ROIC forecast and argue through its sensitivity, to figure out how the investor's return works.
We like how these incentives line up for the sellers, investors, and us.