FIVE QUESTIONS WITH MARK JONES, Partner at River Associates Investments

Your firm just closed on River VI LP, attracting $222 million in commitments, a bit more than twice the size of your previous fund. Although you closed above your $200 million target, the fund was in the market for a year and a half. How would you describe the fundraising climate for lower-middle market private equity shops like yours?

There’s definitely an interest in the lower-middle market. People see that this area has some inefficiencies compared to the middle market. That said, there are hundreds of funds trying to raise capital, and they are all competing for dollars just like we are. So, it’s a highly competitive fundraising environment.

You have the field all to yourself in terms of private equity firms in Chattanooga, Tenn. Does that give you a home-team advantage when raising money from Tennessee investors?

I think we are officially the largest private equity firm in Hamilton County, Tenn. I’m sure our location helps, but it’s probably just one of many criteria that management teams look at when they want to deal with a private equity group. As for investors who have been with us for a long time, they care a lot more about the relationship and our track record.

With this fund, you’ve decided to get larger by raising money from institutions like insurance companies and endowments. What are the pros and cons of seeking out larger investors?

We have historically been backed by family offices. And most of them recommitted to River VI. But for this fund, we also raised about half the money from institutions. Our idea was to grow the fund, but stay focused on the small-company space. The reason for raising a bigger fund was so we could pursue investments at the top of our EBITDA range, which is $3 million to $10 million. It’s also so that we are able to pursue more add-on acquisitions for our platform companies. With a smaller fund, if you do a lot of add-on acquisitions, you could be handicapped by portfolio concentration issues. And ultimately, having a larger fund behind us will also give us more credibility with deal sources and management teams.

Is your strategy evolving in any way?

No. Having a larger fund just gives us the bandwidth to chase larger platforms and to execute more on ’buy and builds.’ What we’ve been good at over the years has been the strategic buy-and-build process, and leveraging the knowledge of these management teams while helping them think through what they want to do: Do you want to hire more people, add more products, or go externally to acquire a competitor that brings something strategic, such as a new product line or a different physical location? Having a bigger fund gives us the bandwidth to improve this process.

Your firm invests across a variety of industries. Are there specific industries in which there are opportunities that are particularly ripe right now?

No. We’ve always been generalists. There are certain sectors we avoid, but we’re pretty agnostic when it comes to industry. There are a lot of good industries out there, and ultimately, you’re investing in people.

Edited for clarity by Gregory Roth