CVC is one of a growing number of buyout firms in recent years to raise funds focused exclusively on smaller investments in the technology sector.
Global buyout firm CVC Capital Partners has raised $1.6bn to invest in growing technology companies, the latest in a wave of similar firms arming themselves with capital to back such businesses.
The new fund, CVC Growth Partners Fund II, is more than 50% larger than the firm’s first tech-focused fund, which closed with $1bn in 2016. That fund has backed 10 companies, including a recently announced investment in SheerID, which helps companies such as Amazon.com, Comcast and Target identify and market to specific types of customers.
CVC’s tech investment team typically targets software and tech-enabled services companies in which the firm can take a controlling stake or share control with other investors.
The London-based firm said its growth unit typically invests equity amounts of $50m to $250m at a time. For example, CVC led a $64m growth round for SheerID alongside existing backers Centana Growth Partners and Voyager Capital, the firm said in a news release.
CVC was able to capitalise on strong investor appetite for tech-growth funds. Tech-focused growth offerings have raised $42bn across 21 funds so far this year, on top of $28.7bn raised for 53 funds in 2018, according to data provider Preqin.
But $29bn of the total raised this year was collected by a single China-focused fund backed by the Chinese government. Another 79 tech-growth funds are still in the market seeking a total of $17.5bn, Preqin data show.
Other private equity firms that have raised funds focused exclusively on tech deals, or that are currently marketing them, include KKR, Bain Capital and Permira.
For its part, CVC differentiates itself partly by identifying specific sub-sectors in tech-focused industries that it believes show strong growth characteristics and the potential for disruption, according to a person with knowledge of the firm. The firm then seeks to back a market leader in that sub-sector, preferably one that demonstrates strong cash flow growth with low capital expenditures, stable recurring revenue and a strong management team, the person added.
SheerID, for example, operates in the growing area of identity marketing, in which companies personalise their marketing efforts to specific types of customers. Demand for the Portland, Oregon-based company’s services has grown as scrutiny of consumer data privacy has increased, according to the person. In a press release, SheerID said its revenue has surged 450% over the past three years.
CVC originally formed its tech-growth team in 2014 and hired managing partner John Clark to lead the effort. Before joining CVC, Clark was a general partner at US buyout firm Welsh Carson Anderson & Stowe and served as a member of its management committee.
Source: Private Equity News