Five Elms eyes $850m target, $1bn cap for latest growth equity fund

A key aspect of the firm's strategy is a concentration on B2B software dealflow outside of Silicon Valley and other traditional tech hubs.

Five Elms Capital is targeting $850 million for a sixth B2B software growth equity offering, according to pension and Form D documents.

Five Elms VI has a hard-cap of $1 billion, San Antonio Fire and Police Pension Fund documents said. The Kansas City, Missouri, firm has already held a first closing and will hold a second this fall. It is expected to wrap up capital raising in December.

Fund VI arrived in the market two years after the close of its predecessor at $780 million. Evercore is the placement agent.

Tech-focused growth equity has since 2022 grappled with a market reset that drove down once-lofty prices. However, for GPs with capital available there are value opportunities in today’s less competitive environment. In addition, the disruptive power of digitalization, enhanced by recent AI innovations, is expected to continue fueling opportunities over the long term.

Five Elms was founded in 2006 by managing partner Fred Coulson, formerly an executive with TH Lee Putnam Ventures, the one-time tech partnership of Thomas H Lee Partners and Putnam Investments. He oversees a team of more than 60 professionals.

Coulson established Five Elms to be a majority or minority investor in typically bootstrapped companies in B2B software sectors to help accelerate growth and provide liquidity to founders and early investors. For Fund VI, targets will have annual revenue of $2 million to $20 million and enterprise values of $30 million to $50 million, San Antonio documents said.

A key aspect of the strategy is a concentration on dealflow outside of Silicon Valley and other traditional technology hubs. Five Elms “believes this segment is highly attractive and underpenetrated given the gap left by the rapidly growing software funds, who now also provide a natural buyer universe,” San Antonio documents said.

As “software is going global,” Five Elms’ website said, another theme is helping companies with their international expansion. This includes overseas businesses looking for a greater presence in the US market.

Fund VI aims to build a portfolio of 18 to 26 companies, San Antonio documents said, with initial equity investments of $20 million to $40 million.

Five Elms’ latest platform deals include Continu, an enterprise learning amplification software provider. In the spring, Continu announced closing a $13.5 million investment led by the firm. Around the same time, Five Elms also led a $27 million investment in Practice Better, a health and wellness practice management software provider.

The 2019-vintage Five Elms IV was earning a 1.4x net multiple and a 17 percent net IRR as of March 2023, according to San Antonio documents. The 2016-vintage Five Elms III was earning a 3.1x net multiple and a 46 percent net IRR.

Five Elms did not respond to a request for comment on this story.