STG 2025?
Thoughts on the firm here folks? How hard is it to derive valuable assets and portcos in the age of AI with more hairy assets?
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Latest fund (2022 vintage) is currently marked at a -13.77% IRR and is fourth quartile, the fund before that (2020 vintage) is marked at 9.65% IRR and is third quartile as per pitchbook. Seems like they did much better in previous funds, but is getting killed post 2020 as they have grown fund sizes too quickly. I think the 2020 fund numbers are pretty reflective, but the 2022 fund has some time to make it up. Bright side is that they have some diffrentiation to LP's so probably not in as much trouble when performance is lagging vs. a JAMMBO. Probally not the top UMM/MM GE / PE even in software I would take (funds like FP, TA, Hg, AKKR, PSG, Great Hill, Lead Edge, JMI, etc. all seem stronger), but should be a fine 2-year program. I think STG is among the first one out in terms of Tech UMM/MM names in my view of what I would accept for on-cycle for instance.
Want to note just really quickly: STG's strategy is also probably most likely to be hit by AI-disruption. Hard to do lower multiple in software space where being the market leader increasingly matters more, and seemingly people are back to being willing to pay-up for market leaders. Their whole strategy of trying to turn medicore businesses into good-ones seems less safe than a Hg or TA, that typically invest in higher-quality / multiple businesses.
Isn’t their whole strategy to use AI for tech PE? That was the whole thing around why Romesh Wadhwani got into PE.
They’re more of a tech turnaround/value shop relative to peers. STG’s niche historically has been buying B- or C-level software businesses and trying to get them to B/B+ (value creation through operational improvement and in the big tech-run up also multiple expansion) versus peer platforms like Hg/TA/FP that typically start with higher-quality assets and scale them to A/A+.
In practice that means STG tends to buy lower-multiple assets with a clear issue to fix, and in this market, a common issue is weaker defensibility vs. AI or being meaningfully behind on AI adoption. Because AI advantages compound category leadership and defensibility, I’m not convinced the traditional “buy mediocre companies and then make good companies” playbook will be as effective over the next cycle in tech as it was pre-LLM. Not saying it can’t work, just that the bar is higher when turnaround targets are structurally exposed to the same tech shift driving compression across the space.
I think you’re thinking of SymphonyAI which is a separate company from STG. Romesh left STG in 2017 to founder SymphonyAI
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I'm not sure you should be giving advice if you're telling kids to take JMI over STG...
FP is obviously a more prestigious shop as is HG, but objectively STG is a better brand name to be at than PSG, Great Hill, Lead Edge, or JMI. I have close contact with both firms and nearly everybody would take STG over AKKR as well
I would take AKKR and Great Hill and JMI over STG, as someone who works at a direct competitor in software PE.
I generally agree with the analyst above, but keep in mind you’re still hearing from someone working off a similar level of publicly available info. I’m at a UMM tech-focused investor as well, and my view is that STG screens as more structurally exposed to AI than most peers. Their style leans toward turnaround, lower-multiple assets, which is exactly where AI pressure hits hardest (and why a lot of these businesses are trading at lower multiple than peers). Given the return the analyst above cited and their investing style, I personally wouldn’t target them on-cycle when there are stronger UMM/MM tech platforms with better upside and less structural headwind.
how would you compare them against other industry-specialized funds? patient square and linden for hc, stone point for fig, aip tjc for industrials. would you take those over STG?
I’m unfortunately not in those verticals so can’t comment on them specifically, but one thing I’ll flag is that TJC is a true generalist. Great firm, strong returns, but from my friend there it skews heavily toward former athletes in recruiting.
I would note: I’d only go specialist if you’re very confident you want to stay in that sector long term. Once you specialize, switching later typically requires either business school or some real narrative gymnastics, because you’re fighting against perceived fit. I’m at a tech UMM and staying post-my two years (received strong indicitations of a promotion from a senior partner) because I genuinely had no interest in other sectors, that’s the only reason specialization made sense for me, but don't think thats the case for most.
There’s something to be said about going to a JAMMBO firm (AEA is a good example) where you can still build reps across multiple sectors, figure out where you belong, and have optionality across sectors, versus somewhere like STG where you’re basically committing to being in the software ecosystem from day one.
STG has some massive dogs in their portfolio, namely Trellix.
Believe the largest position in their 2020 and 2022 fund is Trellix and it has already undergone multiple liability mgmt transactions.
The 2020 fund I think is not a great view of where the firm is headed because they frankly have a couple large assets (Trellix for example) that are not performing and still figuring out how to get out. They’ve also done a couple deals with Clearlake that they probably wish they hadn’t (RSA) but putting that aside for a second I think every firm views them as a very sophisticated and technical shop given the types of transactions they do and the analyses they run. They have sold a few this year and made a couple of purchases this year so their motion is a bit better than the dry year they had before. I think the above comments forget that they have some great assets in their portfolio still (ex: Wrike). I think fundamentally they look at very hairy ways to generate value and returns and if that interests you then it’s one of the few shops that are still doing this kind of investing. To the ai point, we will see what ends up shaking out although I think we’d all be lying to ourselves in this industry to think that we aren’t exposed to a substantial amount of AI risk. You have to be paying premiums like TB to protect yourself from that
Thing is that it's not just the 2020 fund but also the 2022 one in terms of where things are marked. It's not a good sign when you have 2 bad funds, really hard to justify it. I agree that everyone has AI risk, my argument is that STG has more than others who pay those higher multipes / those that buy the market leader in most cases. They are indeed a big player in the software investing MM/UMM space given size and history, I just don't think it'd be the best place to be an investor for more than the 2-year associate stint; therefore my claim of not going for them in on-cycle.
Totally fair point and that was where I was coming from w/ the TB reference. Will meet you in the middle and say 2022 fund is too early to tell for a couple reasons. They still have a good amount left to deploy and the few transactions they have done already take time to bear fruit.
If there are some massive problems in two funds it’s a pretty good view of where it’s going. It’d be much harder to judge if there were some big winners and lots of smaller losers - LPs still don’t like it but it’s forgivable, so more a 50/50 of how it’ll look after. Aren’t the STG guys backed by a big family office and have a very rich founder / CEO? If so they’ll just corner stone the raise to keep the music going
Can’t say much about performance cause I don’t know but I interviewed with them last year and did not necessarily enjoy my experience. Though sharp, all the mid-level (VP/mid-level) guys seemed very tired and honestly pretty sharp elbow.
I’ve only met like 5-6 of them so don’t want to speak for the entire firm culture but just wanted to put my experience out there. And for transparency sake i didn’t get an offer but I’m not writing this out of spite
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