Riverside beats original $300 mln hard cap on Micro-Cap Fund III

Firm: The Riverside Company

Fund: Riverside Micro-Cap Fund III

Target: $225 million

Amount raised: $350 million

Strong investor demand allowed the firm to continue fundraising well past its $225 million target and $300 million hard-cap, Riverside co-CEO Stewart Kohl told BuyoutsRiverside Micro-Cap Fund III is more than twice the size of its predecessor, which closed above target on $137 million in 2011.

“Fund II, in retrospect, was undersized,” Kohl said. “It was invested in just a couple of years, which was too short…so investors agreed that our dealflow, our pipeline, justified a larger fund.”

In addition to the $350 million Riverside collected from investors, Micro-Cap Fund III may receive an additional $150 million in U.S. Small Business Administration funding, which would bring the fund’s size to $500 million. The fund is structured as a small business investment company, so the first $75 million of private funding can be matched by twice as much government-backed leverage.

Micro-Cap Fund III attracted re-ups from a very high percentage of existing limited partners, Kohl said, adding that a handful of new LPs also committed to the fund. A press release announcing the close disclosed commitments from BMO Harris Bank, Makena Capital and the State of Michigan Retirement Systems as well as clients of Cliffwater LLC, Meketa Investment Group and Partners Capital Investment Group.

Micro-Cap Fund III will invest in U.S. companies with up to $5 million of EBITDA. The firm has already secured one investment through the fund. The firm acquired third-party healthcare and pension benefits administration service provider BeneSys in April.

The firm expects to close several more deals in the third quarter, Kohl said, having targeted “really attractive, really beautiful” companies that justify the higher purchase price multiples seen in the current market. “It’s really a seller’s market,” he said.

Micro-Cap Fund III is the third Riverside fund to close above target this year. The firm closed its flagship fund on $1.5 billion in January, $500 million above target In May, Riverside Asia-Pacific Fund II closed on $235 million, 57 percent above its initial target.