With the $100 million close of its second fund, Mainsail Partners will expand its aggressive approach to sourcing lower middle-market deals.
The strategy of San Francisco-based firm is “to take the original Summit Partners cold-call model and apply it to the low end of the market,” said Jason Payne, who founded Mainsail with Gavin Turner. The pair worked together at Summit Partners in the mid-1990s after graduating from Stanford University, where they were classmates. At Summit Partners, they learned the firm’s method of generating proprietary deals by cold calling the presidents and CEOs of growing, profitable and bootstrapped companies.
The two will be shopping for opportunities in services and software, continuing the theme of their $33 million inaugural fund, which closed in September 2005. That fund has been deployed in six companies, including IPS Solutions, a management training and consultancy firm, and 3DGeo, which sells seismic imaging services and software to oil and gas companies.
The firm will also be opportunistic when it comes to seeking out new sectors, as evidenced by its carve-out earlier this month of the sandwich chain Togo’s Eateries from Dunkin Brands Inc.
The firm typically backs companies generating EBITDA of $2 million to $5 million and generally shoots for a 10x return, said Payne. A board seat is always mandatory, although Mainsail is “agnostic on minority or control” investments, he added. Thus far, the firm has not co-invested alongside another shop.
Mainsail’s first fund was backed exclusively by individual investors. Fourteen of those investors have returned for its new fund, along with a number of family offices. Other new investors include Grove Street Advisors, acting on behalf of the Oregon Investment Council, for which Grove Street manages a $250 million discretionary fund; and Oak Hill Investment Management, on behalf of Sacramento Private Equity Partners, a year-old fund launched with $500 million from the California Public Employees’ Retirement System.—C.L.