The Tale of Two Funds

peHUB has covered every nano-development in the fundraising processes of some firms,and Insight Equity and Prophet Equity are two such firms. That’s because an interesting narrative emerged from the parallel fundraising efforts. For all the background, you can read here, and here, and here, and here, but the short story is this:

Ross Gatlin left Dallas-based turnaround shop Insight Equity as the firm prepared to raise its second fund. He left partly because the firm’s terms and fund size were pretty ambitious. Insight had planned to increase its fund size from $300 million to $500 million, while introducing a graduated carry plan that reached 30% for anything above a 4x return, and included a new $250 million mezzanine sidecar fund. Meanwhile, Gatlin launched Prophet Equity and entered the market with a $250 million hard cap, standard carry and a higher than usual GP contribution.

When beginning fundraising in the summer of 2008, neither fund could have predicted the market disaster and subsequent LP-GP power shift that occurred. But it’s fair to say one firm was better positioned to benefit from the market changes than another.

Yesterday we reported that Prophet Equity closed its fund oversubscribed over the holidays. The firm’s first fund has $250 million in equity commitments, in addition to $25 million in GP contributions with the option to increase by another $25 million.

Today I read in the Dallas Business Journal that Insight Equity decided to close its buyout fund on $435 million, while capping its mezzanine fund at $90 million. That total of $525 million comes in short of the total target of $750 million. I’m not sure if any concessions were made on terms, as the firm was “strongly recommending” that investors to the buyout firm also commit to the mezzanine fund, a suggestion that newly empowered LPs probably didn’t take with a smile. The Insight shortcoming only further illustrates the paradigm shift that occurred in the fundraising market last year. Plain and simple, LPs will not make dreams come true for funds with overly-ambitious terms and targets.

Q&A with Prophet Equity on Raising an Oversubscribed Debut Fund

Insight Equity Inching Toward Fund Target

LP-Friendly Terms Helping Prophet Get Fund Raised – Is It Any Wonder?

Go Go Gadget Carry: Insight Equity Shoots for 30%

Insight Equity Raising $500 Million