Middle Market Growth Equity Shops - any clarity?

Hello all,

Would really appreciate any information you all have on ANY middle market growth shop. Seems like all the posts on here (with a few exceptions) are about the larger shops (TCV, Insight, GA, etc) and there is really a lack of information on some of the players. I'm thinking of names like Lead Edge, Silversmith, Level, SGE, Brighton Park, M33, Stripes, Volition, Mainsail etc

Not asking for broader insights on the entire middle market, but rather information on what makes a role (junior level) at any of these firms different (sourcing vs execution, comp etc) and which players stand out/have a strong reputation or culture. Insight/comparisons on any middle market growth firm would be appreciated. Thanks in advance.

 

“Middle market” is a bit of a misnomer here, investment strike zones in this industry can be somewhat fluid and it wouldn’t be surprising to see many of the guys above in the mix for even a $20M check.

In growth there’s a bit of an axis from more PE-like guys (lower growth threshold but prefer closer to / at profitability) to firms that get more involved in hyper growth, VC-like situations. I would put Mainsail, Level, and Silversmith in the former category, while guys like Stripes and Susquehanna are closer to the latter. Of course, some bigger firms like Insight will invest across this entire spectrum.

I don’t think the work is radically different between these firms, if they’re any good they should have a major sourcing component since that’s a key part of how you win in this market.

 

bump - how would you view Silversmith, Lead Edge, Level Equity, SGE, and Stripes? would appreciate any input

 

Yeah wtf is a MM GE shop. they all cut small checks if the deal is right. There are some in GE that act a little more PE like as a pure function of their fund being larger / that's the direction the senior guys there are going towards but the dichotomy between MM GE versus "large GE" and MM PE and MF PE are not parallel .

 

Curious to hear what people think about this asset class as a whole. All these guys have done super well the last 10 years as software multiples have taken off, but now everybody and their grandmother is raising a growth fund. Have talked to a number of these guys about differentiation and none of them have said anything particularly compelling to me - the answer mainly seems to be “well there are a lot of software companies out there so there should be room for a lot of people to eat.”

Maybe that is true but does feel like the world is getting so competitive. It’s become so typical for hot software companies to get flooded with inbounds from associates that it’s basically become a meme on twitter. 

I would honestly be scared shitless of being an associate at one of these places in this environment. 

 

Overall I think you're right but there are two things I'd add

  • Some platform still have a high degree of differentiation in terms of what they can offer founders, e.g., CapitalG (Alphabet's resources), Insite (Insite Onsite)
  • If you believe software is still nascent (e.g., in the second inning) then there still is plenty of pie to go around (e.g., this is why some software funds are growing bigger and bigger and bigger - there actually is more capital need than capital out there. Some people think this is crazy, some have high conviction around it - you would have to research and decide for yourself as I think that's above the pay grade of a post on a forum)
 

I’m bullish on software too and I definitely agree that some firms have differentiation but that’s exactly my point. I’m betting on Insight and Capital G and other firms that have genuine value add to do well. But those guys are raising bigger and bigger funds and building out their resources even more. 
 

I’m referring more to the long tail of ~$500M funds that all seem to be approaching things with the same strategy like Mainsail, Silversmith, Brighton Park, etc. How are those guys going to win deals in today’s super competitive market without paying inflated prices when competing with larger better resourced firms?

 

Rebranded PWP Growth Equity team. Have worked with them prior to their rebranding on a mid-market control investment (coupled with a minority co-invest and very significant management roll) so looked like they had a pretty flexible mandate that time but not sure if that's changed as of recent. Also their operating partners are extremely seasoned and sharp as I worked with them during MPs and diligence meetings as an analyst

 

Adding onto this, Activant capital is an interesting fund. Very new, not great pedigree but has gotten on the cap tables of some interesting companies (at least from my perspective). will be interesting to see how they do longer term

 

Definitely a more complex world - though every firm has their own special sauce in my opinion. To someone's earlier point, the big boys (GA / TA) have moved out of where they grew up and are having to write $300m+ checks to move the needle. TA has frankly moved out of growth all together and is doing platform buy and builds more like a Thoma Bravo than their heritage of growth investing. GA meanwhile just does less in software. MainSail is doing control only, boot strapped. I believe Brighton Park and SilverSmith are more alike than different, though Brighton Park is about twice the size at around $1b. Both these firms have been building solid portfolios and are not having a shortage of deals. It comes down to the value add resources and attention you can give a $75m investment. Track record of the partners helps, as do the value add resources these companies are building. There are some real advantages to being an associate at a smaller firm - you usually get way more interaction with senior people, you see the entire deal process / your role is bigger, and honestly your work life balance is typically better as well as the organization is flatter and people care about each other. 

 
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