Arrowroot targets $50 mln for growth investments at small end of market

Is there room at the small end of the market for a new growth investment shop looking to cut VC-sized checks?

Matthew Safaii is working to find out.

Safaii, a former investment professional with TA Associates and Platinum Equity, launched Arrowroot Capital in January. The firm’s debut fund is targeting $50 million for growth investments in software-as-a-service companies.

Arrowroot held a first close recently and at the same time made its first investment, injecting $4 million in Minnesota-based MedNet Solutions, a healthcare technology company, Safaii told peHUB in a recent interview.

The firm is raising the fund to focus on growth investments in the small end of the market, which other, better-established growth firms have left to pursue larger deals, Safaii said. The firm will make investments ranging from $1 million to $15 million, according to Arrowroot’s website.

“We’re typically last money in, for growth and/or liquidity needs,” Safaii said about Arrowroot’s investments. “We’re writing VC-sized checks, but we’re targeting growth equity-sized companies.”

Arrowroot targets a specific business model—recurring revenue, web distributed software businesses with subscription or transaction-based pricing models, the firm’s website says. Arrowroot focuses on investments in companies near break-even or profitable, Safaii said.

The firm is talking to conventional limited partners such as endowments, foundations, funds of funds and family offices. So far, LPs are expressing an appetite for smaller funds, Safaii said, though the ultimate success of the fundraising remains to be seen. Safaii expects fundraising could wrap up by early 2015.

“There is a trend in the market to look at smaller funds for outsized returns,” Safaii said.

Before forming Arrowroot, Safaii worked as a managing director and head of the acquisitions team at ICG Group. Prior to ICG Group, Safaii worked in the technology group at TA Associates in its Boston and London offices. Before, he worked at Platinum Equity. He was also co-founder of digital media company Quewey.

Other investment professionals at Arrowroot include Luke Armour, Michael Magill and Kareem El Sawy. Armour has worked at BOLDstart Ventures, Brown Investment Advisory, an asset management firm in Baltimore, and Los Angeles-based K1 Capital. Magill spent time at ICG Group in San Francisco, Quewey and Irell & Manella, and El Sawy worked at OpenGate Capital and Redwood Capital Group.

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