Q&A with René Yang, co-head of Vista’s small-cap strategy

  • Yang joined Vista in 2007
  • Named co-head of Endeavor in 2016
  • Endeavor closed debut small-cap fund on $500 mln

René Yang joined Vista Equity Partners in 2007 and worked on Foundation Fund. In 2016, the firm named her co-head of its microcap strategy, called Endeavor. The first Endeavor fund closed in April 2017 on $560 million. Buyouts caught up with Yang to answer a few of our burning questions since the fund close:

What does the opportunity look like for your investment strategy, enterprise software in the lower end of the market?

I might be biased, but I think the lower end of the market is the most attractive segment in the entire sector. There’s a huge universe of companies that are strong fits for the Endeavor fund. There’s no other firm that has as much operational and growth experience in SaaS as Vista, and that experience is especially relevant for the smaller and earlier-stage companies that are often still in foundation-building mode. We’re an ideal partner for this part of the market — marrying capital and operational expertise to help companies not only turbocharge their growth, but sustain it.

What kind of competition do you see on that side of the market?

Most companies in our sweet spot are facing the difficult but fortunate decision of choosing between late-stage venture capital, growth equity and private equity. Each comes with its pros and cons. Frankly, one of the biggest challenges we need to overcome is that many companies at this early stage aren’t familiar with private equity as an asset class. So we’re putting a lot of effort into general outreach and education on the benefits of a private equity investor.

In terms of how we’re differentiated from the competition: Many of the companies at this segment of the market are founder-led, and their decision of who to choose as their financial partner isn’t strictly economic: They want to create a legacy and build a business that will thrive beyond their tenure, and they usually want to stay in their roles to help make that happen. Vista’s deep operational experience and exceptional zero-loss track record on realized control investments help us stand out.

How does this strategy fit into Vista’s overall focus?

Vista’s focus has always been around building best-in-class software companies, and we want to do this across the entire spectrum of the enterprise-software industry. In a sense, Vista has participated in this segment of the market for a long time. When I joined Vista in 2007 and the flagship fund was a $1 billion fund, we had a similar focus and invested in this stage of the market. In 2009, I helped launch the first Foundation fund — a $400 million fund focused on earlier-stage companies. Those funds have grown to be larger, and the Endeavor fund is continuing Vista’s longstanding commitment to building and growing exceptional enterprise-software companies at this part of the market.

In a way, I see your fund as a first-time fund (like an emerging manager), even though it’s part of Vista. What was fundraising like?

We had a huge amount of investor interest, not only because of Vista’s reputation but also because of our existing experience at this stage of the market. Our smaller-cap-focused funds, like Foundation Fund I, are some of Vista’s most successful. Being able to piggyback off our hard work and success in this part of the market created a level of demand that made fundraising much easier than we expected.

How deployed is the debut Endeavor fund?

We’re over 25 percent deployed. So far, we’ve invested in three founder-run businesses. In all three companies, we strongly believed in the founders and we’re excited to partner with them as we help them scale their businesses. In each case, Vista was the partner of choice because of our expertise and track record at building and scaling enterprise SaaS companies.

How do you finance your deals? What’s the financing market look like?

We finance most of our deals with all equity. In some cases, we’ll use a small amount of leverage if the company can support it because the financing markets today are pretty robust. However, given that we’re investing to grow our businesses, we are careful not to overly burden the company with debt and lose the flexibility to make the right investments for long-term-value creation.

What challenges are unique to you as a woman in PE?

I’m happy to work in both a firm and an industry that are fundamentally meritocratic. Your results and returns are what matter most. That said, as an Asian-American woman under 40, I know I don’t fit everyone’s stereotype of what a private equity executive should look like. I have found that focusing on building strong relationships with founders and management is the most effective way to establish credibility and experience. As it’s a deeply personal decision for a founder to give up ownership to anyone else, I am deeply mindful of how important trust is. At the end of the day, we all want the same thing — to build great software businesses.

Do you see the situation for women and minorities in private equity improving?

Private equity has traditionally been a challenging industry for women and minorities to break into, but that’s rapidly changing. To be honest, Vista has played a leading role in this. Vista is the world’s largest private equity firm with a minority founder and leader [Robert Smith], and Vista has blazed many paths in terms of diversity. Vista has 10 female or minority principals and two out of our five funds are female-led. We also have seven female CEOs in our portfolio, and our aptitude and merit-based hiring approach has led to the hiring of thousands more women and minorities across our portfolio companies.

How is it running your own fund? What is life like in that role as opposed to your prior role?

In a sense, I’ve been preparing for this role for a long time. When Vista launched the Foundation Fund in 2009, the founding team was just two co-heads and me as the supporting VP. I had a front-row seat to the fund formation and over the years worked closely with the principals on nearly every aspect of fund management. They were great mentors and role models, and helped me see how to run a great fund. By the end of my tenure with Foundation Fund, I was sourcing and leading investments, both on deal execution and post-deal operations. So, all of that translates to what I’m doing now at Endeavor. A key difference is that I’m now responsible for building a world-class team, and I’m ultimately accountable for the results of the entire fund, not just the performance of my own deals.

Robert Smith has talked about the fourth industrial revolution and what is feeding that: ubiquity of computing power; expanding connectivity; and spread of IOT technology in electronic devices. How does your investment strategy feed into this theme?

What Robert is saying is that we believe that the computing revolution — as radical as it’s been so far — is still just in its infancy. The macro trends that he highlights are either still nascent or still in the steep part of the curve. At Vista, we believe they’ll unleash thousands of scalable and valuable new businesses. At Endeavor, where we’re investing in some of the youngest and most innovative companies in Vista’s portfolio, we have a chance to identify opportunities and build businesses that tap into these long-term, transformative trends.

Action Item: Reach René Yang through her assistant at +1 512-730-2438

Photo of Rene Yang courtesy of Vista Equity