Finding the next Thoma / Vista?
Currently a second year analyst at an EB and researching firms ahead of on-cycle. Interested in joining funds people think are up and coming, the “next Thoma / Vista - tier” funds, to the extent they exist. In other words, which funds today are most like where Thoma / Vista were ~5 years ago? I’m speaking more from a size / returns / growth trajectory perspective, and doesn’t necessarily have to be tech. A few of the firms I’ve been looking into are below, along with my thoughts - please let me know if any other recommendations and if I’m totally off base. Thanks!
Already massive, nearing MF
Insight Partners (latest fund $9.5) - pros: great returns, software space will likely continue to have strong tailwinds, fundraising now for $12 bn fund. Cons: Large team / established platform = limited upward mobility, heavy sourcing at the junior level
Platinum Equity (latest fund $10) - pros: returns, successful niche in operationally intensive, distressed investments. Cons: culture, not sure how much bigger a “bottom feeder” fund can get
TA Associates (latest fund $8.5) - pros: very established name, strong returns, interesting mix of growth and traditional buyout, fundraising now for ~$12 bn fund. Cons: extremely large existing team, heavy sourcing at the junior level
Strong outlook
Francisco Partners (latest fund $7.5) - pros: recent returns have been solid, tailwinds in tech sector. Cons: broad tech investing strategy will pin them with established tech MFs (SLP, Thoma etc) and not sure how much more appetite there is among LPs for these types of funds, historic returns have been volatile
Clearlake Capital (latest fund $7) - pros: great returns, unique strategy with flexible mandate across cap structure and growth / distressed. Cons: increased interest in preferred / minority investing may reduce effectiveness of strategy, recent fund performances difficult to gauge given frequency of fundraising
Veritas Capital (latest fund $6.5) - pros: stellar returns, successful industry focus in gov services / HCIT, read they would be fundraising again in H2 2021 for presumably ~$10bn fund. Cons: niche industry (may be offset by move towards more non-gov tech), recent fund performances difficult to gauge given frequency of fundraising
Genstar Capital (latest fund $7) - don’t know much about these guys except that they have great returns, strict focus on MM type deals, fundraising now for $10bn fund
BDT Capital (latest fund ~$9) - limited information here as well, but know that they have grown a ton recently. Not sure on growth outlook given constraints of focus on family businesses and investments in “old world” economy businesses like consumer and industrials
KPS Capital (latest fund $6) - pros: stellar returns, value creation from high operational involvement, 30% inventive fee indicates strong LP interest. Cons: unsure if highly operationally intensive, distressed fund is scalable to $10bn + territory, invest exclusively in “old world” industrials businesses that may not be the sexiest
Established firms with strong brand name with decent returns in the past few years.
GTCR, TH Lee, Golden Gate, Oak Hill, MDP, Berkshire, Welsh Carson, etc
I’d second most on your list.. Veritas in particular has been on a tear but have to wonder how much more runway there is without expanding their focus beyond government services / adjacent tech.
Brookfield, despite doing some of the largest LBOs in recent times (JCI battery, Westinghouse, barely missing out on TKE elevator) flies under the radar perhaps because it’s always been more real estate and infrastructure focused. Its funds though are in top quartile and they’ll likely make at least 5x on Westinghouse- which would be a $5bn pay day.
Tinicum- more of a family office but have expanded to LPs and recent returns have been more than stellar.
Gamut- former Apollo partners within $1bn inaugural fund.. have hit ground running.
established but growing- Jordan, American securities, sycamore
All the funds you mentioned are already very relevant in the LP world... Francisco has posted insane returns as far as I am aware of. Agree with comment above that Gamut is on to something and it seems that Cove Hill / Cornell are getting attention as well although they are at a relatively smaller scale.
Interested in hearing about Cove Hill. I talked to one person there (so take with a grain of salt) and they said they had insanely good returns but were focused on a specific segment of the market and she didn’t expect the partners to scale too quickly. Do you have any more knowledge on them? Not much out there since they haven’t been around very long.
nah unfortunately, just saw them in a buyer sheet when I was an intern. Was this for on cycle?
Agreed- every GP listed here is already considered a top firm, most are very well established
TA associates don’t do sourcing anymore. Given their global platform and investment pace they could have a significantly larger fund.
Would add Summit, K1, and HG as a sizeable funds that are growing with great returns.
TA is fundraising right now - I'm sure their new fund will be massive.
Would add New mountain Capital to this list. Top tier returns and just closed out a $9bn fund.
Smaller than probably all of these funds but still one I think worth watching is Banneker Partners. Stephen Davis helped found Vista back in the day with Robert Smith & Brian Sheth, and has been involved in a number of low key but high quality deals working alongside Permira and others. I don't know what the story is behind why he left Vista, but he's clearly kept himself occupied and now seems to be making a second go of the institutional framework.
Thanks for posting, great list.
Isn't insight mostly GE?
All the funds you listed are good, but I don't think any of them will become the next Vista/Thoma, they're all too big already.
If you really want to find a fund that has the capacity to become a fund like Vista/TB, I would look for 2 things.
1. Unique and scalable investment strategy that ideally is focusing on an asset class that is underserved or misunderstood. Vista and TB got "lucky" in the sense that they bet the farm on tech and over the past ~20 years or so, tech has had massive tailwinds. It will probably be tough to find another sector that is going to see as much growth or have as much PE potential, but that's one thing I'd keep an eye on.
2. Look for talented investors and even more talented fundraisers who are able to deploy capital quickly and capitalize on timing. If you look at the trajectory of both Vista and TBs funds, they ramped extremely quickly. I don't have the numbers off the top of my head, but Robert Smith, Orlando Bravo and the respective teams were aggressive at both investing and raising capital, which is how they got big so quickly. Most funds grow at a more moderate pace and there's nothing wrong with that, but again, if you want to try and join a rocket ship fund, you'll need to talk to the Managing Partners and get a sense of what their ultimate goal is for the fund.
Thanks, appreciate your first point. However, I’d say that most of the funds in the second category conform to your second point. I believe Francisco, Veritas, Genstar and Clearlake and have all been raising funds that are roughly 2x prior vintages every ~2 years or so.
Also, what do you mean when you say that they’re too big already? Vista / Thoma were by no means small 5 years ago - they’ve just been able to continue to grow at an explosive rate despite their already impressive growth rate.
What I mean is, those funds are growing nicely, but they're old funds. Off the top of my head, I know Francisco was founded in like 2000 and Genstar the late 1980s. They're the same age if not older than TB/Vista. They're grown to be massive funds, but Francisco is at like $15M in AUM right? I doubt they're getting to $60M in the next few years. Again, massive funds all very successful, but if you're looking for the next Vista and want to be a part of that journey and upside, you' be better off going smaller and trying to find something with more velocity in my opinion.
It's going to be hard, there just aren't that many big deals out there and you need a crazy edge to be able to do what a Vista/Thoma did. I think they had a unique combo of a lot of conviction within software and very talented deal makers and fund raisers.
With all that said, you can't really go wrong by joining a Clearlake or the likes, especially if they have a good vision for the future that you can buy into.
Thoughts on Siris?
Francisco has been absolutely killing it. Every time I see an exit from them it’s a 4x or 5x+ . Would not be shocked to see them raising a $15 - $20bn megafund within 2 fundraises
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