It’s always nice to have a lot of capital to invest, but managing a large new fund may be even more beneficial right now.
As many of the later-stage companies that delayed fundraising last year will likely be in the market come hell or high water. 2023.
No doubt traditional venture firms like NEA, which just closed on $6.2 billion in two new funds, will be waiting for them.
Tech Growth
So is buyout firm Bain Capital, which just closed its second Tech Opportunities growth fund at $2.4 billion, up from the $1.3 billion the group raised through a first-of-its-kind vehicle in 2019.
The 30-member team used its debut fund to fund middle-market buyouts, cross-platform investments and pursue “tactical opportunities” that could be bolted on to its other investments.
But venture-backed late-stage startups are among the “archetypes” the group funds, and late-stage startups could prove particularly attractive right now because there’s currently less competition backing them.
At least according to Crunchbase data, late-stage and tech growth funding was around $40 billion in the fourth quarter of last year, down 64% year-over-year from $110 billion at the end of 2021.
Not that Tech Opportunities fund partners are waiting for founders looking for capital.
They have already proactively made four investments in the new fund, three of which fall squarely in traditional buyout territory, including acquiring a minority stake in Ataccam.
A data management platform spun out of Adastra Group; executing a managed buyout in partnership with Bain’s European PE team of Deltatre.
An Italian sports and entertainment technology company based in Turin; and the purchase of primary and secondary shares of the still-private Hudl company, which is nearly 17 years old and based in Lincoln, Nebraska.
A fourth bet was a little riskier when Bain Capital Tech Opportunities Fund led a €590 million funding round in 11-year-old fintech SumUp last year.
Even in a more rational market, the team says it has no appetite for some of the later companies that focused on growth at any cost during the go-go market that suddenly reversed course last spring.
Darren Abrahamson, who leads the team along with three other partners, says that since the group’s inception it has “stayed pretty far away from the really high-growth.
High-toughness companies that did quick fundraising and didn’t give a lot to people. access.
Instead, we found our way into more founder companies that were thinking about the partner they wanted and the valuation they wanted.”
The team is also not inclined to partner with founders it has not known over time.
Partner Philip Meicler points to BuilderTrend, a construction software company founded by the brothers 17 years ago that the Bain team backed with its debut fund.
Meicler says Bain had a three-year relationship with the founders, who had never taken on institutional capital before.
The relationship they established eventually led to joint control of the company.
(Meicler says Bain has since helped BuilderTrend “launch growth vectors like embedded financial services and purchasing materials through the platform.”) Abrahamson adds, “We build relationships for at least a year, sometimes up to five years.”
Investors will seek to fund companies in specific themes and sectors, including cybersecurity, healthcare IT and fintech, with this second Bain Capital Tech Opportunities facility.
“It’s a place where we’ve invested a lot and we have expertise and we know not only the macro trends and the spaces.
Also which companies are in that space and where there could be consolidation and other ways to create clear winners,” says Meicler.
Most of these companies are likely to be based in the US. It’s where the team deployed most of their first fund, although they’ve backed one company in Japan and another in Brazil, and now have a few people in London sharing an office with other Bain Capital staff.
It’s very likely that some of these outfits will be late-stage startups — though they’ll need to have real businesses with real revenue, and Abrahamson seems to think the best opportunities on that front are likely yet to come.
He sees it this way: “A lot of late-stage companies are still trying to manage cash and cut costs and are delaying the need to raise capital and grow into their valuations, so it may take some time for that momentum to play out. ” he says. “For those who came into the market, there was a reluctance to reset valuations; I think the first wave went into more structured debt-like alternatives, but that will change as they realize what comes with debt-like structures, so in this space I see some opportunity.’
According to a story from Private Equity News in late 2021, Bain Capital began courting investors in its second Tech Opportunities fund soon after the first closed.
At the time of the report, the unit — which Abrahamson helped launch — had already received a $60 million commitment from the New Mexico State Investment Board. Back then, the goal was to raise $1.5 billion and invest in up to 15 companies. According to Abrahamson, despite the larger size of the fund, the idea is to continue supporting around 15 companies.
As with all Bain funds, Bain Capital employees are the largest single investor in the fund.
Sources: Techcrunch | Beamstart