TPG enters the home stretch with $3bn sophomore tech growth fund

TPG is nearing the close of a second technology adjacencies offering after bringing in more than $2.5 billion in committed capital.

The fundraising, as of December, was noted in materials published as part of TPG’s fourth-quarter 2021 results. It puts TPG Tech Adjacencies II within reach of a $3 billion target, disclosed last year in pension documents and confirmed by sources speaking with Buyouts.

TPG’s growth platform was a focus of capital raising in 2021. It collected $4.9 billion in all, increasing managed assets to $22 billion. Much of this owed to the wrapping up of TPG Growth V at $3.6 billion, above a $3.5 billion target.

Primed by vigorous dealmaking, especially in technology sectors, growth equity last year had a record run in the North American fundraising market, Buyouts data show. Some 121 funds secured an all-time high of $109 billion, almost one-quarter of the total raised.

Growth equity, however, may soon face a major test as inflation, rate hikes, Russia’s invasion of Ukraine and other macro factors create uncertainty. In addition, recent sharp drops in public tech stocks, long viewed as over-valued, will likely be felt in growth equity investing and portfolios in the months ahead.

In the fourth-quarter earnings call, CEO Jon Winkelried said TPG’s growth platform is “seeing excellent opportunities” in an uncertain environment, including “investments with structure securities with downside protection.”

TPG was one of the first buyout shops to wade into the growth equity space, launching a debut fund in 2007. Emphasizing minority, control growth and flexible capital solutions, the approach allows the firm to invest in companies that are earlier in their life cycle, smaller or have different features relative to those preferred by its large-scale capital platform.

TPG Tech Adjacencies was unveiled in 2018 as an outgrowth of the firm’s tech investing practice. A year later, Fund I raised $1.6 billion to make minority investments, mostly in the form of primary capital solutions, in companies in expansion mode and owner-operators looking for liquidity. Sectors of interest include digital media, internet and software.

Along with digitalization trends, a main driver of the strategy is businesses staying private longer. While they are not eschewing public markets, a large number of tech companies in advanced stages of growth are taking more time to develop and mature before rolling out an IPO.

TPG Tech Adjacencies has to date deployed more than $1.8 billion across Funds I and II, according to the firm’s website. Recent deals include a $200 million financing, announced this week, of commerce experience manager Salsify. TPG, which led the deal, was joined by Permira’s Growth Opportunities Fund, Neuberger Berman and Cap Table Coalition.

Earlier this year, TPG and Sequoia invested $160 million in Thatgamecompany, a video game studio. The firm also led, alongside Thoma Bravo and Goldman Sachs, a $420 million investment in Project44, a supply-chain visibility business. Other investors included Emergence Capital and Insight Partners.

TPG Tech Adjacencies I was generating robust performance as of December, fourth-quarter documents show, with a net multiple of 1.7x and a net IRR of 49 percent.

The strategy is led by co-managing partners Nehal Raj and David Trujillo. Raj leads TPG’s enterprise tech and software investing, while Trujillo leads communications, digital media and internet investing.

TPG declined to provide a comment on this story.