Kian Capital drives to the finish line with a $400m close for its third fund

The lower mid-market manager invests in a wide array of consumer, services, distribution and niche manufacturing companies – including three geared toward DIY car enthusiasts.

Kian Capital, a lower mid-market manager based in Atlanta and Charlotte, raised $400 million for its third fund.

While many emerging and smaller managers face a difficult fundraising environment, LPs have shown they will continue to make commitments to smaller funds with proven track records. Co-founders Rick Cravey and Kevin McCarthy told Buyouts that Kian Growth Partners I and Kian Growth Partners II both finished in the top quartile of performers.

Cravey said incumbent LPs comprise 60 percent of commitments into the third fund. Fund III investors include several founders of previous Kian investments, along with traditional LPs like endowments, fund of funds and family offices.

“The fundraising process was easier than expected. When it came time to raising the third fund, a lot of investors already knew that we had done what we said we would do, which made the conversation that much easier,” said Cravey.

Fund I closed in 2013 at $150 million while Fund II closed in 2018 at $275 million, according to Cravey.

Cravey and McCarthy said Kian looks for founder-owned companies with revenues between $20 million and $100 million in revenue.

“Starting with a company with a stable base of cashflow, but with a lot of potential to grow, limits the downside risk while offering a chance to also really accelerate growth,” McCarthy said.

The lower mid-market is still fairly efficient even with so much dry powder chasing quality companies, according to Cravey and McCarthy.

They also believe in having a relaxed attitude when meeting founders.

“In my own view, people like to do business with someone who they identify with. If you own a business with around $5 million in revenue, you’re going to work in jeans or khakis and a golf shirt and not an expensive, designer suit,” McCarthy said.

For car enthusiasts

Kian has found a niche in the automotive aftermarket focused on car enthusiasts, having made three investments in this space in its two previous funds.

T Sportline, one of the first aftermarket companies focused on Tesla vehicles, draws the most inbound interest out of its current investments, Cravey said.

The Eastwood Company, an e-commerce company focused on selling parts to people who enjoy tinkering with their cars, is a similar current investment. Kian also had a successful exit with Driven Lighting Group, which is geared toward customers who want to upgrade headlights and similar equipment on their vehicles.

On its website, Kian touted direct-to-consumer companies focused on enthusiasts and hobbyists.

“Companies with a differentiated brand strategy, a robust e-commerce presence, and a superior product line drive highly engaged consumers that exhibit almost religious behaviors and are guided by a passionate pursuit of interests and hobbies,” Kian stated.

Cravey and McCarthy founded Kian in 2011.

Cravey previously was a managing director for MCG Capital Corporation and a partner with CGW Southeast Partners. He also held positions at ING Barings. McCarthy was the head of Wachovia Securities Middle Market Capital Group, was a partner with CGW Southeast Partners and was a founding member of Wachovia Securities’ Leveraged Capital Group.