First-timer Crosspoint Capital loses senior leaders as it readies Fund II

For new managers, departures early in the life of the organization can be concerning to investors, especially those considering kicking in for a subsequent fund.

One of the great success stories in private equity over the past few years is Crosspoint Capital, which raised a once-unprecedented $1.3 billion for its debut fund for investments in cybersecurity and infrastructure software.

But Crosspoint, which has been talking to limited partners about its next fund now that the first pool is more than 80 percent deployed, has had a couple of significant departures that are likely to raise questions as the firm begins raising its sophomore vehicle.

For new managers, departures early in the life of the organization can be concerning to investors, especially those considering kicking in for a subsequent fund. Some new funds, though, go through pains as they adjust to growth and changing strategies and priorities of the founding partners.

One of Crosspoint’s senior leaders, Ian Loring, who joined the firm from Bain Capital in 2020, left the firm around the beginning of the year, sources told Buyouts. Perhaps even more curious, considering the firm is gearing up to raise its next fund, is the departure of Crosspoint’s head fundraiser and chief of staff, Emily Melchior, who joined last summer and left recently, sources said.

The two are no longer listed on Crosspoint’s website. It’s not clear why they left or if they are heading to new firms. A spokesperson with Crosspoint declined to comment.

Loring’s departure triggered a key person provision in Fund I. LPs voted to allow the pool’s investment period to continue, in part because the fund is already well deployed, sources said.

In general, when a key person provision is triggered, LPs have the option to immediately end the investment period, canceling uncalled commitments. The point is to make sure the team that LPs back at the beginning of a fund remains through its full term.

Loring joined the firm in 2020 from Bain Capital, where he co-led tech investing. He worked at Bain Capital for almost 25 years, according to his LinkedIn profile. Melchior worked at Searchlight Capital for over eight years before departing last year, her profile said.

Loring was part of the leadership group at Crosspoint, along with founder Greg Clark, the former CEO of Symantec, and managing partner Steve Luczo, former chairman of Seagate Technology; Matt MacKenzie, senior vice president, former chief of staff at Symantec; John Mumford, founding partner of Crosspoint Venture Partners; and Hugh Thompson, former chief technology officer at Symantec.

Last year, the firm brought on Laura Grattan from Thomas H Lee Partners and Dan Stanko, from HGGC, as managing directors.

Crosspoint closed its first fund on about $1.3 billion last year, in what was one of the largest-ever debut funds. The firm’s investments include Forescout Technologies, Cyware, ExtraHop and Everseen.

LPs flocked to Crosspoint’s first fund in part because of the firm’s sector specialization. Clark formerly led Blue Coat and then became CEO of Symantec after the acquisition. He left Symantec in 2019. The company was soon after broken up when Broadcom acquired its (at the time) $2.5 billion revenue enterprise security business for $10.7 billion the same year. Its consumer security business remained an independent public company rebranded as NortonLifeLock.

The firm expected to make five to eight investments in Fund I, though it wasn’t strictly tied to a number, Loring told Buyouts last year. “We don’t have a mandate around any particular number; the idea is really being able to spend time with our companies.

“At the end of the day, we all take pride in and enjoy building great companies. That’s why we’re doing this at this point in our careers, building something we can leave behind that will last,” Loring said.

First-timer risks

Team stability is one of the major risks when LPs back a first-time manager. Generally investors look for teams that have worked together at prior firms, and perhaps are simply spinning out of their former shops.

One of the most infamous first-time fund break-ups was Novalpina, a London-based shop that raised 1 billion euros for its debut pool in 2019.

Novalpina was formed by executives from TPG, Platinum Equity and Centerbridge Partners. The three founding partners fell into disagreement over the future direction of the firm and investment strategy. One of Novalpina’s investments, NSO Group, has become controversial over its spying software. LPs last year voted to replace the GP and bring in Berkeley Research Group to wind down the three assets in Fund I.

Fewer LPs are set this year to back first-time funds. Private Equity International’s LP Perspectives 2022 Study found 42 percent of respondents saying they are “just as likely” or “more likely” to commit to these funds, down from 51 percent in 2021.

Last year, some 553 first-time funds collected more than $46 billion globally, Preqin reports. That was down from the $52.8 billion raised by 572 funds globally in 2020. The peak was in 2017, when 924 funds globally raised $196.7 billion, according to Preqin’s information.

On the other hand, LP appetite for first-timers formed in spinouts from big, brand-name PE firms seems to have risen. Probitas Partners’ 2022 Institutional Investors Private Equity Survey found 71 percent of respondents are focusing on spinouts, up from 64 percent a year earlier.