Dealmakers: How This Firm Uses the Silicon Valley Playbook in the LMM

There has traditionally been a clear line between venture capital and private equity investors. VCs look for transformative technologies that could be the next billion-dollar unicorn. PE firms restructure established companies and consolidate mature industries.

Weave Growth Partners is a three-year-old California deal sponsor that is deliberately blurring that line. It’s bringing the Silicon Valley playbook, based on data, analytics, and artificial intelligence, to LMM deals.

Appropriately enough, Weave’s three partners all have careers that flow through technology, startups, and investing. Austin Neudecker and Vishy Venugopalan met when they were getting computer science degrees from MIT. Later, they both got MBAs at Wharton, where they met Vinay Bachireddy. They went their separate professional ways until Venugopalan called Neudecker at the end of 2018 to explore the idea that would eventually turn into Weave.

Venugopalan, then at Citi Ventures, explained how he noticed the kind of data technologies developed by the startups he was investing in were becoming very important to its Fortune 500 clients and the bank itself.

“Analytics, automation, machine learning were all extremely strategic to Citi’s business and were being discussed at the board level,” Venugopalan told Neudecker. “I saw a big opportunity to bring the kind of thinking that was creating so much value within Silicon Valley and at big companies to smaller companies in the broader economy.”

Neudecker was interested. He witnessed how technology transformed marketing and product development at rev.com, the transcription startup where he ran product and growth. The two batted around the idea for several months. They then reconnected with Bachireddy, who had experience investing in human resources outsourcing companies, an area that Venugopalan and Neudecker saw as promising.

By 2019, they had formed Weave and in partnership with RFE Investment Partners, purchased a controlling interest in Congruity HR, a North Carolina provider of outsourced HR services as their first investment.

Weave expected the deal to close in the spring of 2020. What wasn’t in the plan was the Covid pandemic. With the deal on hold, the Weave partners nonetheless worked with Congruity’s management, helping set up a CRM system for the sales force and modern email marketing system

“It was in the spirit of the long-term relationship we signed up for,” Venugopalan explains. “When we first met Congruity, we made a commitment to roll up our sleeves, implement strategic data initiatives and be with the team through thick and thin.”  The deal was eventually completed in early 2021.

At the end of last year, Weave closed two more: With funding from LKCM Headwater Investments, Weave acquired control of Knack Global, which handles billing for medical offices. And with Peninsula Capital Partners, it bought a majority of Stroleria, an online seller of high-end baby equipment. Weave found both companies on the Axial Platform.

Knack’s founder, Rajiv Sharma, was a technologist and built a company that was the state of an earlier generation’s art. It employs 2000 people in India trained in the arcane details of medical billing codes for each specialty it serves. Sharma had hired CEO Ally, a merger adviser, to help raise capital to fund acquisitions. More than 30 potential buyers expressed interest. After winnowing them down, Sharma picked Weave and LKCM even though they didn’t have the highest bid.

“I liked the Weave people because they have fire in their belly,” he said. “Their experience in AI and process automation made me feel like they can bring value to the products we build and efficiencies for the company.”

Weave is preparing to automate Knack’s claim processing using a machine learning system that it expects will make each billing specialist a lot more productive.

With Stroleria, the most exciting opportunity, Neudecker says, is building on the data that can be collected about parents willing to spend $1000 and up for a stroller or car seat.

“If you’re willing to buy this kind of high-end infant car seat to take your child home from the hospital, we kind of have a pretty good picture of what their buying pattern may be over the course of the next few years,” Neudecker says. “We’ll help them become the hub that helps educate parents about the right gear at the right time to purchase for their child.”

For now, Neudecker says Weave is employing three main strategies with its portfolio companies:

1. “Make sure they are digitizing all their operations today and collecting data in a way it can be used in the future.”
2. “Analyze the data for how to make meaningful changes in the company.”
3. “Automate processes that can be made more efficient.”

Eventually, it hopes to add a fourth strategy, using the data from some of its LMM deals to solve problems that Silicon Valley can’t.

“Let’s say you’re trying to build an app where an insurance adjuster could take a picture of a car and use computer vision to estimate the cost of repairing the damage,” Venugopalan explains. While a technology startup might have a hard time getting the millions of photos it would need to program the app, he says, “We could go and acquire a body a chain of body shops, and we’d already be sitting on all the data.”