Raising a new fund in the downturn is a daunting prospect, but a handful of managers are braving the challenging markets.
One way managers can start operating is by working with a seeding group, several of which have cropped up in recent years to help launch new firms.
Evolution Managers Capital, a partnership between HC Private Investments and family office Landon Capital Partners, is backing a new firm called Greens Farms Capital. Westport, Connecticut’s Greens Farms is being launched by ex-Riverside Co. partner Michael Kessler.
Greens Farms is the second manager on Evolution’s platform. The seeding platform provides $50 million to new managers, allowing them to invest and build a track record before moving into the big phase of raising a traditional private equity fund. Evolution Managers also provide new managers back-office support, and pledges to take a 20 percent LP stake in the manager’s first externally-raised fund.
Evolution Managers ultimately wants to deploy $500 million in the strategy and get to a pace of seeding a manager a quarter, according to Chris Sullivan, managing partner at Landon Capital who is also a co-managing partner of Evolution Managers Capital.
“The goal is [for the new manager] to successfully deploy that $50 million, and whether that’s in two deals or four deals or five deals … after building that track record in Fund I with one LP, they can then go off in a much better position to raise a … traditional private equity fund,” Sullivan said.
In this case, Greens Farms invests in business services, software and technology, media and marketing services and value-added manufacturing. The firm focuses on making investments of $10 million to $20 million-plus in growing companies with EBITDA ranging from $2 million to $5 million.
Greens Farms has the flexibility to invest equity or debt, can take control or non-control positions, and is not confined to the strict 10-year fund life of traditional private equity, Kessler said.
For now, Greens Farms’ staff is Kessler and executives from Evolution Managers, which Kessler plans to grow as the firm finds deals. Kessler also lined up a group of entrepreneurs, including some former portfolio company CEOs, as advisors to consult on investments, he said.
Greens Farms’ pipeline is busy, Kessler told Buyouts in an interview Tuesday. “I spent the last few months talking with business owners and investment bankers about the market environment,” Kessler said. “What I’ve determined … is that covid-19 provided a bit of a wake-up call and family and entrepreneurial-owned businesses are more interested than ever in diversifying their wealth and generating liquidity in full or partial sales of their businesses.”
Two specific focuses in the current market are business and information services, especially those businesses based on subscription models, Kessler said.
“I’ve always had an interest in businesses that make money by saving other businesses money,” he said. “Service companies will continue to be a real emphasis for me, and companies that are in information services, or content-oriented. Companies that provide information tend to perform extremely well regardless of the economic environment, particularly if that information is need-to-have rather than nice-to-have.”
Kessler was a partner at Riverside Co, who worked there from 2013 to January, according to his LinkedIn profile. Prior, he worked at Veronis Suhler Stevenson from 2003 to 2013, his profile said.
Evolution Managers seeded its first GP earlier this year when it backed Conanicut Capital, launched by Jared Paquette, a former executive with Bunker Hill Capital. Conanicut focuses on family- and founder-owned companies in the business services sector, Buyouts previously reported.
The pandemic has slowed activity around new managers over the past few months. But because the downturn could stifle fundraising, especially for new managers, seeding platforms may get even more attention.
“We’ve been able to have a lot of conversations with prospective managers. The challenge is to complete due diligence without having to meet face-to-face,” Sullivan said.