Potter founded SF Equity Partners in 2005, spinning it out of London-based
The firm has yet to have a liquidity event from the six companies it has backed, but the additional funding it received in October valued SF Equity’s portfolio at a premium equivalent to a 20% IRR since its inception, Potter says.
Plans for the new fund are not yet solidified, but Potter says the firm plans to supplement the team of himself and Partner Cameron Steele by adding a third partner. He may also consider leveraging the partners’ time by adding a level of associates.
SF Equity makes minority investments in information technology and consumer-oriented companies with annual revenue between $10 million and $40 million, preferring to be a company’s first institutional investor.
“We definitely won’t change the strategy,” Potter says. “It allows us to be collaborative with the public equity players around us. We get a lot of referrals from private equity firms that can’t figure out how to put $30 million or $40 million to work, and we don’t want to lose that.”
Potter’s business has perked up since the credit crunch has made debt financing more expensive for growth stage companies, he says.
“The businesses we get involved with typically could finance their growth with debt leveraged on EBITDA, that’s not as available for them as it used to be, or it’s a lot more expensive,” Potter notes. “People aren’t quite as aggressive as they used to be, but they’re still sniffing around and looking for growth stories.”
One such growth story might be SF Equity’s most recent investment, a $14 million infusion in Tel-Aviv-based
The investment by SF Equity will help Yes To market its products to a wider audience, build sales channels beyond Walgreens and Duane Reade and relocate its headquarters to San Francisco. “The thing is growing like an absolute rocket ship,” Potter says. “Revenues will be up 100 percent.”
Other SF Equity portfolio companies include Madison, Wis.-based online art dealer