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
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.