It’s always nice to have a lot of capital to invest, but managing a large new fund can be even more advantageous right now given that many later-stage companies that put off fundraising last year will likely be in the market come hell or high water in 2023.
No doubt traditional venture firms like NEA, which just closed on $6.2 billion across two new funds, will be waiting for them.
So will the buyout firm Bain Capital, which just closed its second growth Tech Opportunities fund with $2.4 billion, up from the $1.3 billion that the outfit put to work through the first vehicle of its type in 2019.
The 30-person team used its debut fund to fund mid-market buyouts, make cross-platform investments and pursue “tactical opportunities” that could be bolted onto others of its investments. But late-stage venture-backed startups are among the “archetypes” that the group funds, and late-stage startups could prove especially attractive right now given there is less competition to support them at the moment. At least, according to Crunchbase data, late-stage and tech growth funding hovered 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 partners of the Tech Opportunities fund are waiting around for founders seeking capital. They’ve already proactively made four investments out of the new fund, three of which fall squarely into traditional buyout territory, including acquiring a minority stake in Ataccama, a data management platform that was spun out of the Adastra Group; conducting a controlled buyout in partnership with Bain’s European PE team of Deltatre, a Turin, Italy-based sports and entertainment tech company; and buying primary and secondary shares of the still-private company, Hudl, which is nearly 17 years old and based in Lincoln, Nebraska.
A fourth bet was a bit more venture-y, when last year Bain Capital Tech Opportunities Fund led a €590 million round of funding in the 11-year-old fintech SumUp.
Even in a more rational market, the team says it doesn’t have an appetite for some of the later-stage companies that were focused on growth at all costs during the go-go market that abruptly shifted directions in the spring of last year. Darren Abrahamson, who leads the team along with three other partners, says that since the group’s outset, it has “stayed pretty far away from really high-growth, high-burn kinds of companies that were doing rapid fundraising and not giving people a lot of access. We found our way instead into more founder, bootstrapped companies that were thinking about the partner they wanted, versus the valuation they wanted.”
The team isn’t inclined to partner with founders who it hasn’t known over time, either. Partner Philip Meicler points to BuilderTrend, a construction software company founded by brothers 17 years ago that the Bain team backed with their debut fund. Meicler says Bain had a three-year relationship with the founders, who had never before accepted institutional capital, and that the rapport 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 materials purchasing through the platform.”) Adds Abrahamson, “We build relationships over at least a year to sometimes up to five years.”
What the investors will be looking to fund with this second Bain Capital Tech Opportunities vehicle are companies within particular themes and sectors, including cybersecurity, healthcare IT, and fintech. “It’s where we’ve invested heavily and have expertise and know not just macro trends and spaces but also which companies are in the space and where there might be consolidation plays and other ways to create clear winners,” says Meicler.
Most of those companies are likely to be U.S. based. It’s where the team deployed most of their first fund, though they backed one company in Japan and another in Brazil and they now have a few people in London sharing an office with other Bain Capital employees.
Very possibly, some of those outfits will be late-stage startups — though they will have to have real businesses with real revenue, and Abrahamson seems to think the best opportunities are likely yet to come on this front.
As he sees it, “A lot of late-stage companies are still trying to mange cash and cut costs and they’re delaying the need to raise capital and grow into their valuations, so it could take time for these dynamics to play out,” he says. “With those that have come to market, there hasn’t been a willingness to reset valuations; I think the first wave have gone to more structured debt-like alternatives, but that will change as they realize what comes with more debt-like structures, so I do see some opportunity in that space.”
According to a late 2021 story in Private Equity News story, Bain Capital began pitching investors on its second Tech Opportunities fund soon after closing the first one.
At the time of the report, the unit — which Abrahamson helped launch — had already landed a $60 million commitment from the New Mexico State Investment Council. At the time, the goal was to raise $1.5 billion and to invest in up to 15 companies. According to Abrahamson, despite the larger size of the fund, the idea continues to be to back roughly 15 companies.
As with all Bain funds, Bain Capital employees are the largest single investor in the fund.