Summit Returns to Roots with New Fund

Citing a desire to return to the roots of its investment strategy, Summit Partners has begun pre-marketing a private equity fund with a target of $150 million that will invest in small deals uncovered by the firm’s deal sourcing operation.

The new fund will contribute growth equity of less than $10 million to small but profitable companies that have not received prior outside capital – many of these companies started with the entrepreneur’s own money, said Martin Mannion, a partner at Boston-based Summit. The investing will entail both control and minority stakes. This was the same strategy Summit employed when the firm opened its doors in 1985, Mannion said.

Summit currently is investing its fifth buyout fund, which closed last year on $1.1 billion. The growing size of the firm’s funds led it to target larger deals, prompting some of Summit’s limited partners to request a vehicle that focused on the small-deal space the firm vacated years ago, Mannion said.

The fund will be managed by Kip Sheeline, a managing partner at Summit’s Palo Alto, Calif., office. Sheeline is a recent recruit from Hambrecht & Quist LLC, where, as a managing director, he specialized in communications investment banking. Partners at Summit have had a working relationship with Sheeline for more than 10 years, Mannion said. The firm currently is looking to add two more general partners to help run the fund.

Summit employs a staff of associates who each year “cold call” thousands of chief executive officers whose companies meet the Summit investment criteria. Mannion said the new fund would vet deals sourced through this team that otherwise would be considered too small for Summit’s mega-fund.

Making use of Summit’s small-deal flow was an idea originally advocated by Ernest Jacquet, a managing director who left Summit last year to found his own firm, Parthenon Capital, with John Rutherford, chairman of The Parthenon Group, a Boston-based consulting and investing firm.

When Jacquet launched Parthenon Capital’s $250 million fund last June, he said the two firms were working out a deal-sharing agreement by which Summit would forward leads on companies to Parthenon Capital that the larger firm deemed too problematic or small.

According to a spokesperson for Summit, the deal-sharing idea became “unworkable,” and the relationship with Parthenon Capital since has deteriorated. Parthenon’s Jacquet did not return calls seeking comment.

The love lost between the two firms likely will not affect Parthenon Capital’s continuing fund-raising efforts or its relations with investors, say limited partners already committed to the fund. Jacquet made no mention of any deal-sharing arrangement with Summit while marketing his fund, instead emphasizing his own record at Summit, according to Kelly DePonte, chief operating officer of Pacific Corporate Group, a Parthenon Capital LP.

“Ernest was very clear about his own contacts and deal sourcing,” DePonte said.