Spectrum Equity gears up for Fund VIII targeting up to $1.2 bln

Spectrum Equity is talking with limited partners about launching its eighth fund with a target of $1 billion with a $1.2 billion cap, according to three limited partners with knowledge of the firm.

It’s not clear when the fund will officially hit the market.

The firm is staying disciplined on fund size, the LPs said. Spectrum collected around $1 billion for Fund VII in 2014, $680 million for its sixth fund in 2010 and $1 billion for its fifth pool in 2005.

Fund VII was generating a 0.38 percent internal rate of return as of Sept. 30, 2016, performance information from California State Teachers’ Retirement System shows. The fund is still too early in its life to determine meaningful performance.

Fund VI was producing a 20.06 percent IRR since inception as of that date, CalSTRS said. And as of that date, Fund V was generating a 17.85 percent IRR since inception.

Spectrum’s fourth fund, which raised $1.75 billion in 2000, was a weaker performer than more recent funds. Fund IV was generating a 7.47 percent net IRR as of Dec. 31, 2016, according to Washington State Investment Board performance data. That fund would have been investing directly into the tech downturn.

Spectrum, with offices in Boston and San Francisco, invests in rapidly growing companies that are profitable. Spectrum focuses on business services, information services, digital media, software and internet-related growth sectors.

Principal owners of Spectrum Equity Management are Christopher Mitchell, Victor Parker, Benjamin Spero, Brion Applegate and William Collatos, the firm’s Form ADV shows. Applegate and Collatos formed Spectrum in 1993; the firm launched its first fund in 1994. Spectrum managed about $2.1 billion as of Dec. 31, 2016.

Applegate and Collatos stepped back from day-to-day management around the time Fund VII was in market, one of the LPs said. This allowed the next generation of leadership – Mitchell, Parker and Spero – to step into the role.

Spectrum’s investments include Ancestry.com, SurveyMonkey, Lucid Software, Net Health and ExamSoft. In March, Spectrum and Cressey & Co agreed to acquire a majority stake in Verisys Corp, which provides data and software for healthcare providers.

Correction: A prior version of this report listed an incorrect amount for Spectrum Equity Investors V. The fund raised $1 bln. The report has been updated. 

Action Item: Spectrum’s Form ADV: http://bit.ly/2tD6s41

Boston Red Sox batter David Ortiz stands in the on-deck circle in Game 4 of the American League Division Series against the Oakland Athletics, at Fenway Park in Boston, October 5, 2003. Photo courtesy Reuters/Brian Snyder