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Cashing in on disruptors, no matter the IPO market

When it comes to competing for a piece of the most desirable startups, private equity firm TPG has, among other things, the advantage of scale — about $70 billion in assets under management.

Partner David Trujillo led TPG's investments into the top two disruptors —Uber and AirBNB, along with number 25, Spotify. TPG also invested in number 32, SurveyMonkey, and former Lynda.com, which sold to LinkedIn in 2015 for $1.5 billion. And though the IPO market is in the midst of a drought — the fewest public exits for venture-backed companies since the last recession — Trujillo said that gives his investments a long-term advantage

"The IPO market is shut for all intents and purposes at the moment. I think the benefit these companies have now though is they have a little bit of the best of both worlds," says Trujillo. "They've been able to scale in the private context, but still have access to liquidity, which used to just be reserved for public companies. Just given the fundraising environment of the last few years, they have not been limited by the fact that they have not been public."

That means the likes of Uber and AirBnB have been able to deal with regulatory issues, and scaling, without having to deal with the scrutiny of being a publicly-traded company. "Staying private allows companies to get their ducks in the row as they've gone through hyperbolic growth," said Trujillo. "We're optimistic that the regulatory environment will shift to accommodate massive consumer adoption."

People count money at Macy's Herald Square store in New York.
Andrew Kelly | Reuters
People count money at Macy's Herald Square store in New York.

And Trujillo said a weak IPO market, raising concerns about sky-high valuations, is actually creating more opportunity for his fund: "The flat round is the new up round. This bubble is finally showing signs of leaking. Sources of capital that have come in — hedge funds, mutual funds, sovereign wealth funds, high net worth investors — they're now starting to pull out."

Trujillo said he's thrilled to see his investments AirBnB, Uber and Spotify "nail their business model" and now focus on scaling. But he's cautious about focusing too much on simply chasing disruption. "Some of these businesses shouldn't be disrupted," says Trujillo, pointing to the likes of valet parking. "There's also the issue of timing. AirBNB would have been difficult without social media to get background on people, or without geolocation."

The holy grail, Trujillo said, is going after large, stable, profitable industries, as Uber and AirBNB have done. And the alignment of disruptive technology, plus timing. And it may be some time before TPG cashes in on its investments in these Disruptor 50 companies, but when it does, Trujillo said he's optimistic the fund's patience will pay off.