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
lol coming back to this thread a few months later and FP raised $21B across their two funds… their flagship now is bigger than legacy MFs like Tpg or Carlyle
When will you guys learn that fundraising is a lagging indicator - they might have raised 90% of the fund 1-2 years ago and closed just now, there is no signal in their close. The true tests are in the upcoming vintages. Same with the funds raised right now, they just proved resilience to all the 20-21 PE buyout bubble/shenanigans, not SaaSpocalypse/AI.
Hg is done with fundraising and was done some time ago. What happens next is tbd obviously.
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.
I'm a software growth guy so don't really play in the same category as the firms you mentioned, but my general view on tech fundraising:
Rare high-value WSO post, agree completely. I'll add that, at least from what I'm seeing, there's a true bifurcation developing between software in public and private markets. The IGV is now up YTD last I checked, but that recovery has been heavily concentrated in perceived AI winners and names that got unfairly beaten down on AI risk. Across our portfolio and the processes we're in, we're seeing an enormously wide range of valuations for software assets, almost entirely a function of perceived AI risk. There is also, a re-starting of software PE activity led by FP and Thoma, which should be helpful to the market, not to mention the news of very large take-private bids.
Someone is going to make a lot of money buying a perceived AI loser that turns out to be an AI winner 4-5 years out. The problem is that's incredibly hard to underwrite, which is exactly why so many funds are sitting it out rather than taking a view. My take: the 2025-2026 vintages will end up far better than the 2020-2021 ones for the right funds, given the risk-reward on offer in the current software market. But the dispersion cuts both ways. There will also be materially more losers and outright bankruptcies than last cycle.
I tend to agree with the poster above that software PE, at a fund with capital to deploy that raised in 2025 or later, is still a far better spot to be an associate than the plethora of MM/UMM funds that haven't raised recently. That said, I don't think all software firms will be good spots to be a senior associate or above.
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