Bringing Active Investing Lps & Gps Together for 32 Years

JANUARY 2020

March 16-18, 2020 Hyatt Regency | Boston, MA Bringing active investing LPs & GPs together for 32 years

Read the latest scoop on topics being discussed during PartnerConnect East. The flagship event forum for Private Equity and Venture Capital.

Dear Colleague:

PartnerConnect Events is excited to host the 32th Annual PartnerConnect East on March 16-18 at the Hyatt Regency Boston.

You are invited to join us as we gather 400+ top Private Equity and Venture Capital LPs and GPs for two days of prolific networking and educational sessions. Keynote speakers include, the very best investment minds in the Private Equity and Venture Capital space.

Our carefully curated event will include peer-to-peer interactive roundtables, a cocktail reception, ExecConnect private meetings and our highly anticipated closed-door LP and GP Think Tanks.

Our white paper articles are brought to you by the publishers of Buyouts Insider, Private Equity International, Venture Capital Journal and the prestigious PE HUB on topics being discussed during PartnerConnect East.

Articles within this white paper include:

3 Details on Thoma Bravo Fund 4 Market at a Glance: Fundraising is $100 bln high than this time last year 5 Sustainable investing is good for the planet and the balance sheet 8 Senator Warren-backed bill would fundamentally change private equity 10 Big, established PE funds drive record fundraising

Thank you for reviewing our white paper and I look forward to connecting at PartnerConnect East!

Kind Regards,

Daniel Weinstein Program Director bit.ly/pce2020 PartnerConnect East 2020 | BUYOUTSINSIDER | 3 Details on new Thoma Bravo fund More information on Thoma Bravo’s new fund; plus, a new study reveals an increase in the number of deal co- investors. January, 8 2020

By Iris Dorbian

ust a reminder for you Dear Reader, that our 20th annual JBuyouts Deal of the Year awards nominees are due by Feb. 10. But there’s no time like the present to get us your submissions so we can get them ready to vet. Send submissions my way at [email protected].

Update: Thanks to our research crew here at PEI, I have some addi- tional info about Thoma Bravo’s debut small-company fund called Explorer Courtesy of Getty images fund. The leadership group on the Check out my story here. fund will include Principal Carl Press, Investment group: I’m working two vice presidents and two associates, on a feature about the rise of large along with the firm’s broader manag- investment groups in the secondar- ing partner group, according to a ies market, where lead investors are preliminary investment report from representing a smaller percentage of Arkansas Teacher Retirement Asso- the total purchase price. A few years ciation. Press joined Thoma Bravo in ago a lead buyer would be expected to 2015, before which he was a tech inves- be a quarter if not a third of the deal. tor at HighBar Partners, an associate in the special situations group at Oaktree “What surprises me is in some Capital and an analyst at UBS. billion-dollar deals, you even see this on the fund portfolio Explorer fund will target compa- side, the lead could be $150 nies with revenues ranging from $30 million to $150 million, the million,” a secondary buyer investment report said. told me. Courtesy of media.thinknum.com 4 | BUYOUTS| PartnerConnect Texas 2020 bit.ly/pce2020 Market at a Glance: Fundraising is $100 bln higher than this time last year Cortec leads the charge as buyout and mezzanine fundraising overall is $100 billion more than at this point in 2018. But dealmaking has not enjoyed such a robust year. By Buyouts staff

t’s been a good year for U.S.-based buyout and mezzanine fundraising. Since the last issue of Buyouts, fund manag- Iers added $6.5 billion to the year-to-date total, currently at more than $281.4 billion. That’s $100 billion more than at this point in 2018, with still a month left of fundraising in the calendar year.

Cortec Group led the charge with the close of its seventh mid-market fund, which hit its hard cap of $2 billion. The fund is the largest in the firm’s history, nearly twice the size of its previous flagship that closed in 2015. Sightway Capital was not far behind, raising $1.2 billion for its first private equity fund, which will focus on financial services and real estate. Sightway Capital is the PE arm of Courtesy of Getty images Two Sigma Investments. Dealmaking has not enjoyed the robust year of fundraising. The 2019 year-to-date total is currently $154 billion, $110 Alpine Investors also crossed the billion-dollar threshold, billion less in volume than the year-to-date total in 2018. closing Fund VII on its hard cap of $1 billion. Evercore Only one deal crossed the billion-dollar hurdle: acted as placement agent while Kirkland & Ellis provided Blackstone Real Estate Income Trust Inc, a unit of legal counsel. Blackstone, acquired the Bellagio Hotel & Casino from MGM Resorts International for $4.25 billion. BREIT Healthcare Royalty Partners added to the frenzy with its owns 95 percent while MGM the remaining 5 percent on fourth mezzanine fund, which raised $659.4 million. So did completion. SK Capital, which closed its debut small cap fund on $400 million, beating its original $300 million. bit.ly/pce2020 PartnerConnect East 2020 | VENTURE CAPITAL JOURNAL | 5

Sustainable investing is good for the planet and the balance sheet As consumer behavior shifts toward more sustainable products, investors are also finding that the sector pays dividends By Rebecca Szkutak

ustainable consumer products launch in 2018. aren’t just for hippies or heli- New York-based Silas Capital has been Scopter parents, but for the main- investing in many different types of stream consumer, as many of them sustainable consumer products since its search for better options. founding in 2011. These investments Consumer spending behavior has been include smart grills, beauty products pivoting toward more sustainable and and insect repellent. environmentally friendly options for years. Nationwide sales for these prod- Duty of investors, entrepreneurs ucts is expected to reach $135 billion in 2019 with forecasts predicting as high as $150 billion in 2021, according to data from the Nielson Company. With consumer demand continuing to grow, companies and startups are responding, and investors have a flood of new opportunities in the space. Courtesy of Getty images People don’t just want organic food or chemical-free cleaning products it’s increasingly become, anymore either, they want sustainable clothing, natural and effective beauty or should be, a duty of this products and environmentally friendly generation of consumer transportation. investors and entrepreneurs.” Courtesy of Getty images Startups are responding It’s become a pretty critical element of Grove Collaborative, a sustainable Managing Partner Frank Lin says the our strategy as a firm,” Frank Lin of cleaning and beauty products company, firm isn’t setting out to exclusively Silas Capital said. raised a $150 million Series D round in invest in sustainable companies, but Silas led an $8 million investment September, which brought the three- those companies have offered the best in Bellroy in April. The Australian year-old company to unicorn status. opportunities. leather goods company is a certified B The round was led by Lone Pine Corporation that looks to create more Capital, General Atlantic and Glynn “It’s become a pretty critical sustainable leather options. Capital. element of our strategy as Silas also led the $15 million Series Sunday, a sustainable direct-to-con- a firm,” Lin says. “While A round in Herbivore Botanicals, an sumer lawncare company, raised a $6 organic skincare brand in August. we don’t have a formal million Series A round in August that Stage 1 Fund also participated in the was led by Tusk Ventures. The round or defined approach just round. also included Forerunner Ventures yet, we still believe that and Bullish. The Boulder, Colorado investing in businesses that Lin says that beauty and personal care startup grabbed $9 million in funding have been big driving forces in the are doing good is not just altogether within just six months of its sustainable consumer movement. the responsible thing to do, PartnerConnect East 2020 | VENTURE CAPITALJOURNAL | 6 bit.ly/pce2020

runk Elephant, a sustainable The “best product” for many consum- skincare brand, was acquired ers now isn’t just the most convenient or Dfor $845 million in October by the cheapest. But to compete, sustaina- Shiseido, a Japanese beauty company. ble products can’t skimp out on things The startup was founded in 2012 and like customer experience or quality just raised one round of $8.3 million in because they offer a sustainable option, early 2017. Lin says. London’s The Craftory is another firm that has built its investing strategy on “So now, there is efficacy sustainable consumer brands looking and performance in clean to disrupt the status quo. and natural brands,” “We believe the challenger Lin says. “Consumers brands are here to stay and don’t want to sacrifice they are here to succeed,” that performance in their Courtesy of Getty images Thiago Rodrigues, a senior cosmetic and skincare brands. There is also very partner and “deal crafter” because they will still be able to smell at The Craftory, says. little leeway that you’ll have the coffee roasting and get the same “They are changing the way as a brand to just sell an benefits. FusionX, Congruent Ventures, the consumer companies all-natural product that just doesn’t work, doesn’t Tandem Capital and XN Ventures also will have to behave.” participated in the Series B funding of In March, the firm led a $30 million perform to acceptable the Berkeley company. Series B round in NotCo. The Chilean standards, or doesn’t taste “The market is strong for companies company creates plant-based alterna- good.” that can offer a superior customer expe- tives for such foods as mayo, ice cream rience while driving various sustaina- and milk. Kaszek Ventures, IndieBio Without sacrificing perks bility goals,” Pfund says. “That’s the and Bezos Expeditions joined the Nancy Pfund, a founder and sweet spot. I don’t think people are round. managing partner at DBL Partners, willing to take inferior customer expe- The Craftory has also invested $15 agrees that for consumers to switch riences and drive sustainability.” million into Ruby Love, which creates from their current go-to product they Investors investing in these brands underwear and bathing suits that offer most likely won’t be willing to give up aren’t doing so for a focus on impact. leak-proof period clothing that don’t any of the perks. These companies are also able to require the use of single-use feminine produce strong returns. products. “Consumers want their sustainable cake and eat “It’s not a reason not to do “What we are seeing it too,” Nancy Pfund, DBL as well. It’s not an excuse today in the market is that Partners. to have lesser profit,” Lin the new generation, the says. “You should be able millennials and Gen X and DBL Partners recently led a $40 to build a high-growth Z, they are very concerned million Series B round into Bellwether business without sacrificing about the consequences of Coffee, which created a roaster that anything. It shouldn’t be eliminates the carbon emissions that consumption,” Rodrigues used as an excuse to do come with traditional natural gas-pow- says. “My generation was all ered coffee roasters. poorly.” about having the best product While this machine takes out the Lin gave the example of Boll and at the most affordable price.” harmful use of gas, the consumer Branch, an organic sheet company. won’t know the difference, Pfund says, Silas participated in the company’s bit.ly/pce2020 PartnerConnect East 2020 | VENTURE CAPITALJOURNAL | 7

Courtesy of Getty images

$7 million Series A round in 2016 Nearly half of consumers, 48 percent, “That no sacrifice-approach and $4.5 million Series B round in said they plan to change their consum- is extremely popular right 2017. The firm just exited this year ing habits to be more sustainable and now. Companies that are able when the company received a $100 environmentally friendly, according to to deliver on both sides of million private equity infusion from Nielson data. that are going to be highly L Catterton. The RealReal, a luxury consign- “We always see a huge chunk valued,” Pfund says. “That’s ment company, successfully raised of the market, 30 percent of where the consumer wants $300 million for its IPO in June after this market, is getting away to be right now. They want to raising $349 million over eight years from those big companies have their sustainable cake from such investors as DBL Partners, Canaan Partners, e.Ventures and and going into challenger and eat it too.” others. brands,” Rodrigues says. “I Pfund says that the IPO of the think that’s why there is a lot RealReal in June was a great exam- of participation from VCs in ple. “It’s a circular economy,” she says. “You are putting luxury goods into the big waves of tech. A lot of multiple economic cycles. You are money is being thrown.” using stuff over and over and you are getting a terrific experience and qual- As consumer demand continues to ity designer goods. What’s not to like grow for these sustainable companies, about that?” investor demand should trend right with it. 8 | BUYOUTS INSIDER | PartnerConnect East 2020 bit.ly/pce2020 Senator Warren- backed bill would fundamentally change private equity

• Bill is thorough scouring of • Would make firms liable for how the industry operates employee pensions • Goes after carry, interest • Rod James deductibility, even lenders

By Chris Witkowsky

even as the company on’t look now, but politicians succumbs,” Warren wrote are making private equity a in a Medium post Thursday. political football as the U.S. D Warren has been a vocal critic moves into a presidential election year in 2020. of Wall Street since the global Senator Elizabeth Warren of financial crisis. The Looting Massachusetts co-wrote a bill called bill also reiterates Warren’s Courtesy of Getty images the Stop Wall Street Looting Act of proposal to break up big 2019 that would fundamentally change of walking away from the the way private equity operates. The banks to separate investment wreckage with millions bill attacks two historic pillars of the banking from consumer in fees and payouts. My industry: the tax treatment of carried financial services. plan would stop one of the interest and the ability of PE manag- main sources of Wall Street ers to write off the debt they use to buy companies. “These changes would looting,” Warren wrote. The bill also would make private shrink the sector and push American Investment Council, the equity firms much more liable for the the remaining private industry’s lobbying group, said in a companies they buy, including for equity firms to make statement: “Private equity is an engine worker pensions in the case of bank- for American growth and innova- investments that help ruptcies. tion—especially in Senator Warren’s companies rather than home state of Massachusetts. Extreme “Far too often, the private stripping them down for political plans only hurt workers, equity firms are like vampires parts. Firms that make investment, and our economy.” — bleeding the company dry bad investments would be Private equity was in the political crosshairs in the 2012 election, when and walking away enriched held accountable instead rivals of Mitt Romney attacked his bit.ly/pce2020 PartnerConnect East 2020 | BUYOUTSINSIDER | 9

private equity career. The furor from Congress already changed the tax that period eventually died down, treatment of interest expenses in 2017, though around the same time the SEC limiting firms’ ability to deduct such stepped up its scrutiny of the indus- costs from portfolio companies. But try because of mandates in the 2010 the Republican-led tax change also Dodd-Frank Financial Reform Act. included a reduction of the corporate Other sponsors on the legisla- tax rate to 21 percent from 35 percent, tion include Senators Tammy Bald- which many in the PE world saw as a win of Wisconsin and Sherrod Brown wash. of Ohio, along with Representatives The bill would also make private Mark Pocan of Wisconsin and Repre- equity firms responsible for pension sentative Pramila Jayapal of Washing- obligations of the companies they buy ton. and eliminate private equity firms’ ability to charge portfolio company Particulars monitoring fees, Warren said in her Courtesy of Getty images The Warren-backed bill would do post. several things, including closing the This would occur three ways: it major investor in private equity, would so-called carried interest tax loop- would strengthen regulators’ ability like to see more transparency around hole. Carried interest, the share of to claw back assets considered fraud- fees and expenses even beyond the profits private equity managers collect ulently transferred out of bankrupt headline terms generally available to on sales of companies, is taxed at the entities; it makes individual PE part- the public, according to Illinois State capital gains rate of up to 20 percent, ners, rather than the funds invested in Treasurer Michael Frerichs, who was much lower than the regular income the companies, liable for post-bank- also on the call Thursday. rate that reaches as high as 37 percent. ruptcy obligations like pensions; and it “We want something robust: Critics believe carried interest is would give higher priority to employee companies in the portfolio, total income and should be taxed as such. claims in a bankruptcy, according to assets, average debt-to-income ratio The tax treatment of carry has Adam Levitin, professor of bank- of portfolio companies, number of long been a target of mostly liberal ruptcy law at Georgetown University, portfolio companies in default or politicians, though President Donald on a call about the bill Thursday. bankruptcy, fees, expenses, carried Trump during his presidential It would also limit firms’ ability to [interest] claims,” Frerichs said. “It’s campaign briefly flirted with the idea collect dividends on recapitalizations better for capitalism if people are of changing the tax treatment to the of portfolio company debt, Warren competing on the same playing field.” higher rate. wrote. This would work by barring a The bill is far from law. It’s been The proposal also calls for a change target company from issuing any divi- introduced in the House of Repre- of tax rules to hinder firms’ ability to dends for the first 24 months after a sentatives and Senate and will go into deduct the cost of interest payments buyout. hearings across various committees from portfolio companies’ tax bills. The bill also goes after the finan- in the House like those governing Private equity firms buy companies ciers of PE deals—forcing lenders securities rules, bankruptcy and tax by using equity from their funds, and and investment managers that lend law. It requires a vote in the commit- debt the target company takes on its into buyouts to retain a share of the tees to make it to the House floor, own balance sheet. Firms are able to debt, “to make it harder for them to where it would receive a full vote. If write off interest on the debt, which leave others to pay the consequences it survives that process, it would move has long been factored into the price if things go wrong,” according to a to the Senate and go through a simi- that firms are willing to pay for their summary of the bill. lar process. target assets. Finally, the bill would force manag- Limiting the interest deduction ers to be transparent about fees and affects a company’s cash flows, which performance and prevent firms from in turn alters the company’s long-term requiring investors to waive their fidu- value as an investment asset, Buyouts ciary obligations, Warren wrote. previously reported. The Illinois state pension system, a 10 | BUYOUTSINSIDER | PartnerConnect East 2020 bit.ly/pce2020 Big, established PE funds drive record fundraising March16-18, 2020 | Hyatt Regency | Boston, MA

Private equity funds scored big last year and it doesn’t seem to be slowing down in 2020. Join 400+ LPs and GPs for our 32nd By Chris Witkowsky Annual Private Equity Conference ech deal: Harvest Partners up 16 percent from 2018. While total announced a big tech deal this capital raised has soared, the actual Tmorning, investing in real estate number of funds closed grew modestly. software provider MRI Software, join- This plays into the dynamic we’ve ing TA Associates and GI Partners. TA seen since the global financial crisis also is investing more money in the where the biggest firms are taking up company. more LP capital as investors look to Last year, PE Hub reporter Milana firms they trust. This squeezes out For the past 31 years, LPs and GPs have gathered at PartnerConnect Vinn wrote that GI and TA were investor appetite for anything they exploring options for MRI Software. don’t know, making it harder for new East to network with their elite peers and grasp current trends At the time, Vinn wrote that MRI shops to find capital. Courtesy of Getty images in the Private Equity and Venture Capital community. Software could sell for between $2.5 Established firms are taking advan- billion and $3.5 billion. tage of this dynamic by coming back “Given the 10-year bull run The company, which provides quicker to market with new funds, we’ve been having and the real estate and investment manage- as well as creating adjacent products economy up and to the right ment software to real-estate owners, focusing on other strategies like credit after the global financial investors and operators, had received or smaller companies. While this is High-level speakers including: inbound offers from a few financial helping drive robust fundraising in the crisis, all these managers all sponsors and strategics, the story industry, it’s also establishing a system look pretty good right now,” said. In 2009, Vista Equity acquired of haves and have-nots: firms that can an LP told me recently. “There the company, then known as Intuit raise without a problem, and others hasn’t been any significant Real Estate Solutions. Vista sold the who have to work hard for capital. company to GI Partners in 2015. GI Check out PEI’s story here. downturn to shake out lesser sold half of MRI in May 2017 to TA With fundraising numbers as skilled managers. We’re and since TA’s investment, MRI Soft- strong as ever, activity does not seeing a lot of managers able ware completed 14 add-ons. appear to be slowing as we move into to raise capital today that may Fundraising: The average size of 2020, according to sources. LPs have not have been able to raise in Valerie Bannon Orlando Bravo Donna Brazile Jae Yoon private equity funds raised in 2019 a robust pipeline of firms coming to Chief Investment Ofﬁ cer Founder & Managing Veteran Democratic Chief Investment Ofﬁ cer was the highest since at least 2014, market, with funds that will probably the early 2000s.” State of New York’s Partner Political Strategist; New York Life according to fresh fundraising data raise within months. The challenge Metropolitan Thoma Bravo Adjunct Professor; Author; Investment Management from Private Equity International. for LPs is figuring out which managers Transportation Authority and Syndicated Columnist The average size was $662 million, up will be able to withstand an eventual from $590.2 million in 2018. downturn.  Overall, PE firms raised $537.2 Register today! Bit.ly/pce2020 billion last year, the highest amount raised since the financial crisis, and For program information: For sponsorship opportunities: For registration queries: Daniel Weinstein Julius Picardi Customer Services [email protected] [email protected] [email protected] March16-18, 2020 | Hyatt Regency | Boston, MA

Join 400+ LPs and GPs for our 32nd Annual Private Equity Conference

For the past 31 years, LPs and GPs have gathered at PartnerConnect East to network with their elite peers and grasp current trends in the Private Equity and Venture Capital community.

High-level speakers including:

Valerie Bannon Orlando Bravo Donna Brazile Jae Yoon Chief Investment Ofﬁ cer Founder & Managing Veteran Democratic Chief Investment Ofﬁ cer State of New York’s Partner Political Strategist; New York Life Metropolitan Thoma Bravo Adjunct Professor; Author; Investment Management Transportation Authority and Syndicated Columnist Register today!  Bit.ly/pce2020

For program information: For sponsorship opportunities: For registration queries: Daniel Weinstein Julius Picardi Customer Services [email protected] [email protected] [email protected]