Main Line investors: $137M for software buyouts

PeakEquity Partners, a group of veteran venture capitalists based in Radnor, has completed its first fund, raising $137 million (topping its $100 million target) from wealthy families and institutions, two and a half years after it was set up by dealmaker Greg Case and serial tech manager Paul Winn.

The Peak team says it has already led three buyouts of enterprise-software solutions companies with "proven technology" and "demonstrated traction with a meaningful base" of customers, in partnerships with allied investors:
   - G5 (Bend, Oregon), a Software-as-a-Service real estate digital marketing platform
   - EnterpriseDB (Bedford, Mass.), which uses the PostgreSQL open-source platform to build cheaper business database software solutions
   - Valiant Solutions (Woodbury, N.Y.), a SaaS provider whose platform offers clients payroll, worktime, labor management and HR software.

PeakEquity's targets are infrastructure or application software companies, with revenues $15 million-$50 million a year selling to large and midmarket corporate customers, and typically doing business at least 10 years. The first three deals were buyouts from founders or earlier investors;  the firm is also open to minority investments, Case told me today. 

Founder Case, previously a senior partner at VC investor Apax Partners (an early investor in Apple and AOL) and Ira Lubert-backed LLR Partners, and Winn, a former IBM, Genicom, PowerQuest and Princeton Soft Tech executive, formed the firm in 2014, upstairs from Mike DiPiano's NewSpring Ventures. The pair were joined in 2015 by Ric Anderson, ex of Silver Lake Partners (they led the SunGard buyout), Radnor's own Milestone Partners, and PwC, and by D.J Andrzejewski (Stripes Group, Milestone, Venrock). 

Case's prior deals include one of the Philadelphia area's biggest recent software deals, the 2014 sale of 60-person Radnor-based logistics-software developer Quintiq to French military manufacturer Dassault Systems for $335 million (the business has expanded since the deal).

Quintic was backed by NewSpring and LLR, two Philadelphia investment firms that, like PeakEquity, have found most of their investments outside the Philadelphia area in recent years.

I met with Case in early 2015, after his fund-in-formation had already invested in EnterpriseDB. He told me he saw RedHat, the North Carolina-based company that parlayed open-source Linux code into a string of profitable client applications (and, at the time, a $12 billion market cap), as a model for the "unique intellectual property" EnterpriseDB could grow into.  

"SAP, Oracle and IBM still dominate" enterprise software, he said at the time, selling "absolutely bulletproof" database management software "to handle apps that need to run at enormous volumes." Case and his partners saw increased opportunity to invest in cloud-based software builders that could sell businesses simpler or faster solutions at lower cost. 

Why aren't more of Peak's early investments in Philadelphia? "I've been investing in software companies in this area for a long time," Case reminded me, citing old deals for Bluestone (sold to Hewlett Packard around 2000), Princeton Soft Tech (now IBM Optim), Revitas (sold to competitor Model N earlier this winter), and others, public and private.

"A lot of software has been made in this area. It's still a good place to live and to start a company." Here, as elsewhere in the digital era, "well-established companies with proven intellectual property brands," cash flow and scaleability "will always have capital from private equity firms, banks," and large investors. "Capital will find you."

Yet there is a perception of an important funding gap, Case agreed: "When I hear people complain, it's about a lack of venture capital." The Philadelphia area "certainly has a lot less venture capital" than in the late 1990s, when the Pennsylvania State Employees' Retirement System was backing local venture firms and companies.

After 2001, as SERS assets shrank relative to its fast-rising pension liabilities, favored local venture shops like TL and Keystone failed to deliver big profits, and the rash of dot.coms backed by Warren "Pete" Musser's Safeguard Scientifics failed to match better-established Silicon Valley rivals, the state and the venture capitalists who survived the tech collapse realized it made more sense to spread their investments to places with more computer scientists and more private VCs.

The Philadelphia area is still an attractive place to live and to start a business, Case says. The region has "vibrant angel (individual investor) networks. As long as the public market for stocks remains strong, the angel investors will see good opportunties to invest and to exit. When the public markets are weak, people can get caught."

Of course, slow markets are classic opportunities for classic venture investors, Case added when we caught up today. But with PeakEquity, he and his veteran partners have moved beyond the venture-capital stage and are looking along the East Coast and beyond for business software to back.

"We're everywhere with the exception of California," which is "far too competitive an environment to participate in," he concluded.