The San Francisco-based firm breezed past its goal of raising $150 million to raise a total of $216 million, including $14 million from Payne and his colleagues. The firm focused less on wealthy individuals as it had with its previous funds and instead focused more on securing commitments from larger institutions it had been cultivating relationships with in recent years. These include fund of funds managers Adams Street Partners, RCP Advisors and Private Advisors.
“This is our crossover fund in terms of being truly institutional,” Payne said.
Fund III marks a steady increase in fund size for the firm, which raised $33 million fund in 2005 and $110 million for fund II in 2008. Fund I consisted of five portfolio companies, three of which are exited, and is projected to generate a return of more than 3x invested capital, Payne said. While fund II appears to be in good shape, Payne said the firm has yet to fully exit companies from that fund.
Mainsail cuts equity checks of $5 million to $15 million in deals typically valued at between $10 million and $30 million. Its signature strategy is that it invests—usually for control, but it will take minority stakes as well—in growing founder-owned companies facing an inflection point in which they need more capital to expand. Sectors of interest include software, tech-enabled services and health care services.
In 2005, for example, the firm bought eSecuritel Holdings LLC, a provider of cell phone insurance and replacement programs launched in 2001. Under Mainsail, the company recruited a new CEO and management team, invested in a new software-as-a-service platform and developed a compliance program that helped secure regulatory approval in all 50 states, according to a case study on the firm’s Web site. The company’s revenue increased by nearly 20x before the firm sold it to Brightstar Corp., a $5 billion distributor of wireless devices, in 2011.
Payne founded the firm in 2003 alongside Gavin Turner, with whom he had gone to undergrad at Stanford University. Both also gained experience at growth equity pioneer Summit Partners, from which they’ve adopted the “cold-calling” strategy of finding new deals. The firm also has a principal and two senior associates, as well as an operating staff that includes a “vice president of digital marketing” responsible for helping portfolio companies manage their social media presence and digital marketing.
The larger fund will allow Mainsail to pursue more buy-and-build strategies, Payne said. He noted that the firm sold Professional HealthCare, a provider of home nursing and hospice services, last year to Kindred Healthcare Inc. after completing three add-on acquisitions.
“The challenge there was that we maxed out on our ability to keep building the business,” Payne said. “In this fund, of maybe 12 investments, three or four might be more of the buy-and-build model where we still enter at the same equity check but have more capability to back a winner.”
Image credit: Mainsail Partners