Tech-focused Accel-KKR targets $500M

Accel-KKR is at the midpoint of fund-raising for its third vehicle, a $500 million pool. The Menlo Park, Calif.-based firm, which was formed in 2000 as a joint venture between venture firm Accel Partners and buyout firm Kohlberg Kravis Roberts & Co., raised $350 million for fund II in 2006.Both firms commit money to the fund, but Accel-KKR operates independently from its namesakes.Despite an increase in size over its predecessor fund, Accel-KKR III remains smaller than the flurry of funds recently raised by technology-focused LBO shops. In recent months, firms such as Gores Group, Platinum Equity, Vista Equity Partners, Vector Capital, Silver Lake, along with its mid-market arm, Silver Lake Sumeru, all closed tech-focused funds exceeding $1 billion.

Accel-KKR Managing Director Rob Palumbo declined to comment regarding any fund-raising activity, but he said that he feels the smaller fund size and focus on “mission critical” software and IT-enabled services sets the shop apart from its larger peers.

“Mission critical software is not a ‘nice to have,’” he said. “It’s a ‘gotta have.’”

Competition from Silver Lake Sumeru, in particular, is new. That fund was raised by vets at tech-buyout giant Silver Lake to do deals between $50 million and $150 million. Accel-KKR targets companies generating sales between $15 million and $150 million.

Accel-KKR has a recent exit to tout to prospective limited partners. In November 2007, the firm earned a blockbuster return on an investment from its second fund when it sold Saber Holdings Corp. to Electronic Data Service, earning 6.2x its investment. The complex deal managed to incorporate a carve-out, an add-on and a turnaround.

That big-money return could help the firm shake off the poor performance of its first fund. That pool, invested before the tech boom, generate a negative 0.2% IRR as of Sept. 30, according to the Washington State Investment Board, which contributed $50 million to the fund. —Erin Griffith