Software Investing Just Got More Competitive

Few private equity firms have been able to establish the level of cachet carried by Vista Equity, which is why their continued expansion into growth equity is going to make it that much more competitive for existing software investors in the asset class to attract the best companies. Recently, Vista announced it had raised $850 million for a fund, separate from its flagship $12 billion large buyout fund, that will focus on earlier stage companies providing enterprise software solutions and generating between $10 million to $30 million in annual recurring revenue.

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This segment of companies has been historically targeted by an entrenched set of growth equity firms such as JMI Equity, Great Hill Partners, Insight Venture Partners, and many others. However, traditional large buyout firms have recognized the return potential by moving downstream where growth stage companies have yet to break out into their rapid scale up phase. Vista first entered this space with its 2017 vintage Endeavor fund, of which it is about two-thirds the way through deploying.

What has made Vista so successful over the years is its loyal focus on the software sector. And with that, they were able to build additional services that would aid each of its portfolio companies in making operations more efficient and accelerating growth. The firm has a consulting arm, dubbed Vista Consulting Group, which employs 125 professionals. The group provides each company with thought leadership around best practices, access to additional tools and analytics, peer-to-peer sharing, and executive development, which includes recruiting and developing talent.

While the software sector is certainly large enough to absorb a more formidable entrant into the growth equity segment, there is no doubt that Vista will have a big impact on others’ ability to attract and structure the best deals. Vista is well known and highly regarded in the software world, they are smart and they move quickly. They are the Goldman Sachs of software investing. However, in growth equity, personal relationships do matter and typically what drives an investment decision on the part of a CEO is his or her rapport and trust with the individual representing the firm that will lead the deal. And that’s where JMI, Great Hill, Insight and others can continue to shine.