K1 Investment’s fifth software fund inches past $3.9bn hard-cap

In a red-hot market for technology funds, K1 Investment Management exceeded the target and hard-cap it set for a fifth flagship software offering.

K1 this week filed a Form D fundraising document for K5 Private Investors, saying it secured more than $4 billion. That puts the fund ahead of a $3.25 billion target and $3.9 billion hard-cap, disclosed in December by Connecticut Retirement Plans and Trust Funds.

It is not known if Fund V’s closing is imminent or whether K1 plans to continue fundraising. The Manhattan Beach, California, private equity firm declined to comment.

K1’s latest fund is already its largest. It is twice the size of the 2018-vintage Fund IV, which brought in just over $2 billion.

Tech fundraising rose sharply in the past decade. In the North American market, capital flowing into offerings has been especially high since 2016, averaging $100 billion or greater per year, Buyouts’ data showed. In 2020, 365 vehicles took $180 billion, led by Silver Lake’s sixth flagship fund and Thoma Bravo’s 14^th flagship fund – the two largest tech pools ever.

K5 Private Investors could be part of more record-breaking tech fundraising this year. Activity was strong out the gate in the first quarter, with 102 funds collecting $65 billion-plus.

K1 was founded in 2010 by a team spun out of Kayne Anderson Capital Advisors. It is led by CEO Neil Malik, a former Kayne Anderson senior managing director who established the firm’s growth equity practice. Prior to 2001, he was an associate with Brentwood Associates and Olympus Partners, according to his LinkedIn profile.

The other founders are managing partners Hasan Askari and Taylor Beaupain, as well as Dan Ghammachi, a managing director of K1 operations.

How K1 invests

K1’s strategy is to make mostly control investments in North American enterprise software companies valued at up to $250 million. Preferred opportunities are providers of mission-critical applications and system of record services that generate recurring revenue and hold significant amounts of customer data, its ADV filings showed.

K1 does not target specific sub-sectors, but has typically invested in application software, healthcare tech, systems software, IT consulting, interactive media and advertising, the CRPTF report said. The firm reports investing in more than 150 businesses, including add-on acquisitions, to date.

Fund V will make 15 to 20 platform investments, writing checks of $100 million to $300 million for each, the CRPTF report said. Post-investment, K1 will pursue bolt-ons and operationally focused initiatives to help companies grow and become market leaders.

Deal announcements since January include Atera, a remote IT management provider, Panopto, a K-12 video management system, and XTM, a translation management software maker. K1 also said it invested more than $200 million in the merger of Brainspace and Reveal, creating a new AI-enabled legal tech platform.

Some 335 limited partners committed to Fund V, according to the Form D. Among the LPs who have disclosed investments are CRPTF, Employees’ Retirement System of the State of Hawaii and San Francisco Employees’ Retirement System.

Fund V’s placement agents include Atlantic-Pacific Capital, Barclays Bank, Eaton Partners and UBS Securities.

K1’s funds were together generating a gross multiple of 1.8x and a gross IRR of 37 percent as of March 2020, the CRPTF report said. Fund IV was earning a gross multiple of 1.1x and a gross IRR of 12 percent.