MM Software buyout fund. Looking at the marks in our current portfolio ahead of a fundraise, and they're hyper aggressive. Anyone who's been through a fundraising round -- what do prospective LPs actually see? I'm sure everything that we want to show will be heavily adjusted and sanitized, but even a cursory glance beneath the curtain would not look great. Anyone else have the same thoughts when staring at their current portfolio?
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No/minimal markdowns after the SaaSpocolypse? Good luck with the raise.
Yup. I'm at a JAMMBO that is weighted consumer/services and some of our marks are ridiculous. Just looking at revenue and EBITDA $ trends by portco would show how aggressive some of the multiples we're using that wouldn't transact in 2026. One example - we've "switched" a portco from being valued on an EBITDA multiple to a revenue multiple despite it being an EBITDA multiple sector and how we valued it on entry. Just so it would mask the EBITDA decline at the portco.
If I was an LP, don't think I'd invest in my firm's next fund tbh. I get why DPI is the key metric nowadays.
Are LPs not looking at the port co file showing revenue, ebitda, etc at entry vs. current?
Who the heck are these people paying 2 and 20 for this
This point is a common thread across the industry and sectors, not just your fund and not just software. Not exactly sure how things shake out over the next few years but likely going to see more and more zombie funds coast along on existing portfolios + a small few better positioned firms take the markdowns and move on.
Personally think that marks should move toward being performed by third parties across the industry. Far too much gamesmanship and abuse of power by firms across the industry. Think anchor LPs should demand it, JAMMBOs need their capital more than LPs need them.
No one trusts third party marks because the interests are misaligned. If Kroll doesn’t give you the valuation you want you just go somewhere else. Ideally LPs would select their own valuer and keep them on their payroll but this is not pragmatic when some have >1,000s of underlying portfolio companies.
Marks are all fake. A PE firm's incentive is to mark every asset at the highest level it can defend under basic questioning, nothing more. That's why fundraising is a lagging indicator: a firm can keep marking and keep raising well after the underlying performance has turned, so the damage doesn't show up until DPI finally forces the issue.
DPI is the metric that actually matters post-COVID. The 2018-2022 (basically anyone who was investing any capital during COVID) vintages are going to be ugly across the board. If you also had a weak vintage in the 2010s, you're in real trouble. LPs will forgive one bad fund, but two in a row is a pattern (serious changes required, likely raising at a smaller size), and three in a row and you're likely done. Anyone who indexed hard into SW across the 2020-2023 vintages is sitting on terrible numbers, and a lot of them are going to have to massively downsize, or they've got one more fund left before that reckoning hits. Look at Charlesbank that just transitioned out Michael Choe, will expect similar moves from a lot of these JAMMBO funds that haven't raised in 5+ years. A lot of the software MM-type firms will be the future JAMMBO's, others will of course continue to grow.
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