Summit Returns to Roots With New Micro Effort –

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 found by the firm’s deal sourcing operation.

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

The fund will be managed by Kip Sheeline, a managing partner at Summit’s Palo Alto, Calif., office. Mr. Sheeline is a recent recruit who was a managing director at Hambrecht & Quist L.L.C. where he specialized in communications investment banking. Partners at Summit have had a working relationship with Mr. Sheeline for over 10 years. Summit 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. Mr. 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 Mr. 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 (BUYOUTS June 1, 1998, p. 3).

According to a spokesperson for Summit, the deal-sharing idea became “unworkable,” and the relationship with Parthenon Capital since has deteriorated.

Mr. Jacquet did not return calls.

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