Software companies have become an increasingly attractive investment choice over the last few decades. This is largely thanks to the rise of SaaS (software-as-a-service). The SaaS model has enabled promising small- to mid-market software firms to lower costs, scale more easily, and iterate quickly.
Needless to say, big bucks can be made by investing in a growing software company. Let’s take a look at the top middle market software investors today:
Inverness Graham
A private equity firm, Inverness Graham specializes in recapitalizations, acquisitions, and leveraged buyouts. They’re a major middle market software investor, with current holdings in companies like GPSTrackIt, a fleet management software solution, and Spirion, a leader in enterprise data management solutions.
Inverness Graham was also an early investor in many software companies that have achieved successful buyouts. In 2016, for instance, Global ID Group, a food safety and quality solutions provider, was acquired by Paine & Partners, LLC.
Parallax
Founded in 1999, Parallax makes control equity investments in lower middle market software and tech companies. Their current portfolio features a range of exciting software firms, such as Quark Software Inc, a content automation platform, and Centercode, a provider of beta test management solutions.
Parallax has made investments in numerous companies that have recently been acquired by larger firms. In late 2017, Fox Technologies, a leading provider of security and access control software, was acquired by HelpSystems.
Serent Capital
Serent Capital was established in 2008 and is a private equity firm focused on making investments in growing, profitable businesses. Software companies make up a good portion of the firm’s portfolio, with current investments in great businesses like TalentWave, a leading provider of contractor compliance and contingent workforce management solutions, and Docutech, a dynamic document generator.
Serent Capital has made many lucrative investments in software companies over the years, overseeing many successful exits. For example, in late 2016, DiamondMind, a provider of payment processing software for independent schools, was bought by Education Brands.
K1 Investment Management
A private equity and venture capital firm, K1 prefers to invest in enterprise software and services. They work to add value to their companies by helping organizations with leadership development, performance improvement, and revenue acceleration.
K1 has been increasingly active in the investment space. In December 2017, they led a $6.5 million Series A funding round for IronScales, the world’s first automated phishing prevention provider. In July 2017, K1 sold ChiroTouch to Waud Capital Partners, a chiropractic software company, after helping the firm increase revenue by a factor of 5x in three years.
Spotlight Equity Partners
Spotlight specializes in acquiring privately-held software companies in North America. They deploy between $5 to $50 million per deal.
Spotlight has completed 10 transactions with software businesses to date. These include explosive companies like iCongo, an omnichannel commerce solution, and Sunquest Information Solutions, a healthcare diagnostics solutions provider. Look for more smart investments in years to come from this rising middle market software investor.
Alpine Investors
Alpine Investors has nearly $1.5 billion assets under management across a range of industries, including software-driven businesses. Their portfolio is full of a diverse array of SaaS companies, such as MinuteMenu (childcare software), Bill4Time (invoicing software), and Avitru (construction specification software).
What’s perhaps most unique about Alpine Investors is that how they don’t just provide capital to companies, but also work to enhance leadership and build a great company culture. This ”people first” strategy helps deliver better returns. For instance, through their CEO-in-residence (CIR) program, one where Alpine finds fresh leadership for growing businesses, they’re able to achieve great ROI. CIR-run companies have brought Alpine an average revenue growth of over 200% over the life of the partnership.
The road ahead for middle market software investors
Software is the ultimate business model today. Spending on enterprise software continues to increase at nearly 10% per year. The future looks bright for these private equity firms, as they’ve established a strong position in a steadily growing sector. We’ll see what new players emerge in the coming years, and the types of investments that will get them to the top.
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