Wednesday, April 22, 2020
Happy Wednesday, Dear Readers! This is Milana Vinn with your weekly Tech Take.
It’s been a crazy week for me, filled with packing and unpacking. But as I write to you from my new home in Dumbo, Brooklyn, I’m finding joy in in the little things. Using a portable projector, we’ve created our own big-screen theater on the apartment’s largest wall without sacrificing our social isolation. Bingo!
Now, let’s talk tech.
This just in: Edison Partners has injected $10 million in Bodhala, a fast-growing legal tech company that has found itself a beneficiary of the economic downturn.
To put it simply, the tech platform helps customers gain real data-driven insight into how much things cost in the legal marketplace.
More businesses, including many private-equity backed ones, are calling for affordable legal counsel amidst the recession, and that’s no surprise, Daniel Herscovici, a partner at the growth equity firm, told me.
The company’s co-CEO, Raj Goyle, said much of the PE-driven demand is centered around SBA Loans and the CARES Act.
PE customers are also pushing their lawyers to submit bills electronically through Bodhala to improve transparency. Firms can then leverage to negotiate better rates for the legal costs they anticipate ahead, he said.
“Law firms price everybody as if they are LeBron James, when we know there is only one LeBron James. Because without any benchmarks, without any data, it’s almost impossible for a private equity firm to know what they should pay,” Goyle said.
Signs of Optimism
I thought I’d kick things off today by sharing some indications of hope.
Stifel’s Global Technology Group surveyed 300 tech entrepreneurs, CEOs, PE and VC investors to find out how the sector views the recession and its severity.
The response has been surprisingly optimistic, supporting the idea that many tech companies haven’t been hit too hard by the covid-19 downturn, Cole Bader, co-head of Stifel’s Global Technology Group, told me.
VCs, tech-focused PE shops and tech CEOs, are, by definition, “a relatively optimistic lot,” Bader said. In particular, he said, software companies have yet to feel any pain: “They are recurring-revenue businesses so they are not seeing any cancellations.”
Some key findings:
• Most respondents expect the business impact of covid-19 to last over 6 months (62 percent)
• Most respondents expect a U-shaped recession and recovery (65 percent)
• Most respondents are encouraging their portfolio companies to pursue add-on acquisitions (76 percent)
Most industry CEOs and investors are also expecting a much shorter recovery compared to professionals in other sectors, according to Bader. The tech community expects the recession will take a shorter U-shape and feel more like the downturn the US experienced in 2001-2002, as opposed to 2007-2008, Bader said.
“I think in other sectors there is an expectation that this is becoming a much longer U, well into 2021,” Bader said.
This optimism, especially on the PE side, appears to be reflected from an M&A perspective. According to the survey, 76 percent of respondents continue pursuing add-on acquisitions and pushing their portfolio companies to pursue targets.
However, Bader gave warning to the overly optimistic, cautioning that the tech industry is often exposed to the challenges facing other industries.
“Tech entrepreneurs need to remember that their customers are in other sectors and those are getting hit pretty hard,” Bader said. Some areas that will recover quicker like e-commerce providers and some software verticals — but many others may face a longer than six-month come back, he said.
What are your thoughts on these findings, dealmakers? Reach me at email@example.com.
York Capital Management closed its third fund on $800 million and announced the hiring of former Angelo Gordon executive Harish Nataraj. York Special Opportunities Fund III targets control investments in middle-market companies led by experienced management teams. York’s flexible strategy encompasses a focus across strategies and can include companies under stress to growth situations.
York also announced its first deal out of Fund III, acquiring The Good Feet Store, which makes and sells personalized arch support and related products. Read more.
CalPERS backed off proposed changes to its investment committee’s duties, including the committee’s role in external manager selection, after blowback from board members and stakeholders. Critics saw the changes as relinquishing too much authority from the board to investment staff on setting the fund’s asset allocation, choosing external managers and building its portfolio.
“I just think that the board needs to not abandon its fiduciary duty and not cede more of its authority to the staff,” board member Margaret Brown told Buyouts Monday. Read the full story here.
That’s it, have a good one! Reach me with your thoughts at firstname.lastname@example.org.