Software PE fund raise (FP, Hg) outlook in 2026?
Francisco partners (fund VII $13.5B in 2022) is raising $14B fund; Hg (Saturn III $11B in 2022) is raising $12B fund… how are LPs thinking about these pureplay software PE fundraises given the SaaSpocalypse? Will these firms have trouble meeting their target?
I assumed software PE fundraising as a whole was going terribly as well, but took a closer look and not sure that's true. Hg is already at $30bn across three funds for their current raise as per PENews reporting. Funds with good returns, pedigree and a strong story are seemingly still doing well. Thoma raised a $24bn flagship (vs $20bn target) $8bn MM fund last year. Veritas announced a ~15bn fund raise in February this year, they aren't pure tech but do a lot of tech. On the MM side: Great Hill $7bn, PSG $6bn, Haveli $4.5bn, JMI $3bn all last year as well, as well a as a bunch of smaller $1-2bn funds like Siversmith and Recognize. In March this year, Bregal Sagemount and Lead Edge both announced raises of $3.5bn funds, both of which are larger funds than their last one.
The caveat is that fundraising is a backwards looking indicator, and the SaaSpocalypse will likely make the "strong returns" part harder to sustain over the medium to long term. That said, if you're an incoming associate at one of these shops these are still good spots to learn as they deploy this capital over the next 2-4 years. Would still probably rather be at a software fund that has capital to deploy vs. the plethora of UMM funds who haven't raised for 4-5 years+.
What’s the story on Recognize? I’ve seen them mentioned on here a few times but it’s all relatively surface level info
From what I understand, they focus more on tech services businesses v. tech itself - for example they look at the implementation services partners around different ecosystems (e.g., NOW, WDAY). One of the founders at Recognize had founded Cognizant so that's where their edge comes from in theory
All these funds were actually raised before Jan / Feb this year - eg the ones that closed early this year were really raised over the past 12-18 months. LPs are definitely keeping a watchful eye on AI impact - stating the obvious, but the performance of the portfolio and narrative GPs spin (as it pertains to AI) will be very important for future raises.
Assuming they’re performing well then, any insights on performance? Seems like they’re pretty talent dense between operating and investing backgrounds
Hg is done with fundraising and was done some time ago. What happens next is tbd obviously.
Sounds horrific to do a new raise in 2026. What LP in their right mind would allocate to buyout software PE and have their money locked up for 10yrs given the insanely rapid improvements in AI?
In publics, it's hard to even dimension the rate of AI advancement & penetration 1 year from now let alone 10x that
This is a real structural headwind to software broadly (public and private). Some software will be big beneficiaries of AI, but most will be losers. In a buyout PE portfolio, it indexes even harder towards losers (if we look 3-5yrs out) given it's mostly legacy software that's growing sales at under 10% clip
Again -- look at companies that are looking to raise post-Feb of this year since that's the real barometer (given Jan-Feb was when AI software risk started to be priced in to public markets)
Would NOT tether your career to software broadly if I were you. Software guys on public side are frantically trying to pivot to other areas of tech right now and increasingly more conviction that these are structural -- not cyclical -- headwinds
I don't think anyone is commiting their career to software joining as a PE associate. The goal is to get a lot of deal reps at that stage and learn about businesses. A lot of software funds who raised just last year will still be deploying capital in the upcoming years, so are still fine places to be associates. I agree that wouldn't want to hedge my careers to software, but that's much more relevant post-associate stint.
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