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Second Bite of the Apple

Definition

The retained equity stake that a founder or owner-operator keeps after a partial sale to a PE or growth equity investor. When the investor later exits the company at a higher valuation, the founder realizes a "second bite" — additional proceeds on top of the original transaction. The structure aligns founders with their investors on post-transaction value creation and is a core feature of majority recaps and minority growth equity investments.

Context

In Ep. 22, Ryan Murphy describes Norwest's growth equity approach: "We're not typically doing a buyout. We typically want to invest up to a 70% ownership stake. We want to see meaningful roll from the team, and we're trying to back operators and founders. We like being there for their second bite of the apple." The structure is a key selling point in Norwest's outreach to bootstrapped founders considering their first institutional capital.

The concept also implicitly appears in Ep. 21 where Glenn Oken describes Mangrove's majority recap structure with owner-operators typically retaining ~30%.

  • Majority Recap — the transaction structure that creates a second bite
  • Growth Equity — the asset class most associated with minority second-bite structures
  • Private Equity — the broader category within which both structures exist