Strattam Capital, using seeded portfolio methods, exceeds target on Fund III

Tech-focused Strattam Capital closed its third flagship fund with more than $300 million in total commitments, a 33 percent increase over what it raised for its previous offering.

The firm beat its target in what has been described as the toughest fundraising environment since the global financial crisis. This is especially the case for emerging managers, with LPs mostly sticking with their deepest relationships as they slow their commitment pacing.

Emerging manager fundraising dropped last year. First-time funds globally raised around $25 billion, compared with $47.6 billion in 2022, according to Buyouts data.

Austin-based Strattam focuses on founder-led B2B technology companies.

The firm held an initial close on Fund III in early 2022, according to co-founder and managing partner Bob Morse. Soon after, the Federal Reserve began raising interest rates, which began causing public market volatility, M&A and exit activity to slow and eventually led to the regional banking crisis last year.

Strattam was able to find deals in 2022 and 2023 due to its focus on founder-led software companies located outside of the nation’s leading tech hubs – often overlooked by bigger managers. Many of these companies were not subject to an auction, giving Strattam the opportunity to close deals, according to Morse.

“We actually had our most active year of new investments in 2023,” Morse said.

Investing while fundraising, known as a seeded portfolio, has been a strategy for many managers to help entice LPs into their funds. The LP gets a view of the kinds of deals the firm will do, its sourcing efforts and how it works with companies in which it invests. The strategy helped Strattam secure re-ups and also attract new LPs.

“The result was a very barbell fundraise. We had a very strong first close, and then we put a lot of that capital to work during a difficult time period, which led to a very strong final close,” Morse said.

Strattam’s investments range in size between $20 million and $60 million, according to a company press release.

Larger funds lack the ability in many cases to meet entrepreneurs at companies of this size, many of which have yet to develop high levels of reporting standards, Morse said.

According to Morse, two of the businesses Strattam acquired recently have never had an audit or a budget, with the founders running these businesses fully “in their heads.”

“We can meet the founder where they are and help them build their reporting and become more transparent so they can then go and talk the capital markets at a higher level. The large funds and strategics have so much capital that they’re dying to get the types of businesses we’re graduating,” Morse said.