Butterfly, launched by two friends from KKR and Vista, flits past target on debut fund

Adam Waglay and Dustin Beck, co-founders of food-focused private equity firm Butterfly Equity, have been best friends for more than a decade.

And so when it came to pitching limited partners on their debut fund, which just closed on $520 million, one factor that they felt was to their advantage was their partnership.

“I’d argue we know each other better than many of the firms out there,” Beck said during a recent interview.

LPs liked the fund’s strategic direction, but were concerned with what Beck called “checklist” items: “We’re two young guys doing something very disruptive and ambitious; the fact that we hadn’t really worked together, these were like checklist items LPs have to see.”

Ultimately, Butterfly’s strategy resonated with potential investors. After a fundraising process that ran more than two years, Butterfly held a final close on its debut fund on June 28, beating its $400 million target, Buyouts is reporting exclusively. It also raised $320 million for a co-investment side vehicle. Butterfly worked with UBS as placement agent on the fundraising.

Overall, including a bit more co-investment capital, Butterfly has around $863 million in assets under management. (See its Form ADV here: https://bit.ly/2QFX2iR.) The debut fund, called Butterfly Fund II, charges a 20 percent carried interest rate with an 8 percent preferred return, the Form ADV said.

Butterfly pursues deals in the food sector across agriculture and aquaculture, food and beverage products, food distribution and food service. Technology plays a large part in Butterfly’s investments as a way to accelerate growth and manage costs at businesses.

The firm avoids emerging food businesses that are targets for venture capital, Beck said.

Butterfly’s goal is to use technology to streamline operations. An example of this approach is the firm’s 2018 investment in Pacifico Aquaculture, which raises striped bass in ocean farms in Mexico. At Butterfly’s urging, the company instituted automated feeding processes and installed cameras with software to manage feed consumption, Beck said. These changes helped increase efficiency of the feeding process and reduce costs, he said.

Butterfly also upgraded accounting technology at fast-casual restaurant chain Lemonade Restaurant Group, an investment it made in 2016 alongside KKR.

The firm has deployed about half of Fund I across four deals, with a few more opportunities in the pipeline. It tapped its co-investment fund on its acquisition of Campbell Soup Co’s Bolthouse Farms, which it bought in June. The Bolthouse acquisition required an equity check of more than $400 million, and the co-investment fund allowed the firm to handle the full amount, Waglay said.

Lessons learned

Waglay, 36, and Beck, 35, left high-profile private equity shops to start Butterfly in 2015, a daunting prospect save for the fact that both received strong support from their prior firms.

Waglay worked at KKR from 2007 to 2015, and Beck worked at Vista Equity from 2008 to 2012. The two became friends at Goldman Sachs, where they both worked prior to getting into private equity. “Goldman is like going to college: That group and that class are pretty close,” Waglay said.

Beck and Waglay brought lessons they learned at their prior firms to their new venture. Waglay said he benefited from exposure to KKR’s focus on operational improvements at its portfolio companies — a philosophy he employs at Butterfly.

Beck said Vista Equity’s specialized, operational focus on enterprise software was something he carries with him. “Being able to live and sleep and breathe software, and now food, it gives you a leg up on insights and trends and technology and all those things that come with being a specialist,” he said.

“Capital in a way has become commoditized, but being specialists — and being able to be valued-added partners that aren’t just armchair quarterbacks — is pretty helpful,” Beck said. “It allows you to see a unique angle others might not see,” he said.

Action Item: Contact the firm at 310 409 4994 or via its website at https://www.butterflyequity.com/contact/.