Wavecrest Growth Partners is looking for business-to-business tech deals outside Silicon Valley with a fresh pool of capital from its debut fund.
The Boston private equity shop, co-founded in 2016 by former Bain Capital Ventures Partner Deepak Sindwani and former tech executive Vaibhav Nalwaya, closed Fund I on $190 million this week.
The fund exceeded its $100 million target and hit its hard cap. Wavecrest has already allocated $65 million from the fund across three growth investments. Wavecrest plans five to eight more investments, Nalwaya and CFO John Lawrence told Buyouts.
Last year, the firm invested the $65 million across Building Engines, a producer of software for commercial real estate management; Tier1CRM, a vertical CRM software for financial firms; and SpinCar, a software and technology-enabled services company in automotive sales.
The PE shop is close to completing two more deals. “Both companies are around $10 million in revenue, both are growing nicely around 40 percent a year, and both are profitable,” Nalwaya said.
With new investments, the firm is looking at enterprise software companies in markets like Syracuse, New York, Boston, Chicago, Toronto and Tennessee.
Wavecrest invests in vertical market segments, including in software for commercial real estate, infrastructure, marketing, and payment services. Other industries of interest include auto supply chain, fintech and insurance.
This is opposed to investing in horizontal market segments that serve numerous industries at once, Nalwaya said.
The firm targets founder-led businesses with $5 million to $25 million in revenue and with limited competition. The PE shop invests $7 million to $30 million per deal and serves the lower end of the middle market.
“Our companies typically have two to five competitors; we don’t want them to have a hundred competitors,” Nalwaya said. Investing in vertical markets “eliminates irrational competition,” he said.
“When we started the firm, we saw a white space in the market,” the lower end — “if you wanted a small check size, this needed to be a venture deal,” Nalwaya said. “So we saw a white space to apply our expertise.”
Wavecrest’s investor roster is primarily institutions, including pension plans, university endowments and insurers.
The firm also takes capital from its operating advisers: CEOs and board members. Those advisers invest in Wavecrest’s portfolio companies and assist their founders with growth and operational support.
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