Thoma Bravo readies next fundraising cycle into stormy markets

The risk with quick and consistent fundraising processes is that commitments and capital calls for new deals will outpace money flowing back to LPs.

Private equity fundraising has slowed mightily since the peaks of the bull market era, and for many firms that means taking more time in between launching new pools.

But for a handful of firms, the belief is that capital will continue to flow from limited partners as their mix of strong past performance, team cohesion and strategy focus makes for an irresistible offering.

One such firm is Thoma Bravo, which has turned into a fundraising machine over the past few years. The firm, which emerged in 2008 as a rebrand of Thoma Cressey to focus more fully on software investing, closed its last fundraising round in late 2022 having amassed more than $32.4 billion across three fund families: its 15th flagship pool; its fourth mid-market fund called Discover; and its second small-market vehicle called Explore.

Having deployed nearly $11 billion into deals last year, the firm is gearing up to kick off its next fundraising cycle later this year, despite the challenging environment. Thoma Bravo announced to LPs at its recent annual meeting that it intends to launch its 16th flagship fund, and its fifth Discover fund, in the fourth quarter, sources told Buyouts.

The firm expects to hold a first close in the first quarter of 2024, sources said. The firm did not announce its next Explore fund yet, they added.

No target was discussed as yet, though sources said they expect the firm would target at least as much as the prior funds. A Thoma Bravo spokesperson declined to comment. Thoma Bravo closed its 15th flagship fund on $24.3 billion and raised $6.2 billion for the fourth Discover fund.

“The amount of growth these guys have had is amazing,” an LP who knows the firm said. Thoma managed more than $120 billion in assets as of December 31, according to its website.

The challenge, though, will be getting LPs to open their wallets even as they are waiting for more distributions to flow from recent vintages, according to an LP source with knowledge of the firm.

The risk with quick and consistent fundraising processes is that commitments and capital calls for new deals will outpace money flowing back. This is the case for many LPs in the market as exit activity slows, forcing them to slow their commitment pacing into new funds, skipping certain funds they may otherwise like or cutting commitment sizes.

“Investors are saying, ‘Let’s get some capital back before we keep piling in,’” the LP said.

For Thoma Bravo, cash proceeds in 2022 from the flagship fund reached nearly $11 billion, according to a person with knowledge of the firm.

The firm has been steadily investing into the challenged markets. In February, the firm closed its take-private deal of Coupa Software for $8 billion, PE Hub reported. Thoma Bravo and Sunstone Partners closed a take-private of UserTesting in January in a deal valued at $1.3 billion, the firms announced at the time.

Fundraising has gotten harder after its tough run last year. Fund closings dropped 29 percent from a year earlier, their lowest level since 2017, according to Buyouts research. Though capital raised totaled $528 billion last year, down from the $535 billion raised in the bull market year of 2021, Buyouts found.

However, fundraising sentiment has been described as “bleak,” according to a recent report from S&P. Around 45 percent of PE executives surveyed expected fundraising conditions in their location to deteriorate, while 34 percent said conditions will remain unchanged. The survey included 511 PE, VC and LP respondents between December 2022 and January 2023.