Volition Capital Raises $600 Million for Pair of Funds
Wall Street Journal: Growth-Equity Firm Volition Raises $600 Million for Pair of Funds
Growth-equity strategies, considered less risky than venture capital, are attracting more investors.
By: Yuliya Chernova
Volition Capital has raised $600 million for its latest pair of growth-equity funds, continuing an investment strategy that has attracted greater interest from venture-capital and buyout firms.
The Boston firm raised $400 million for its main fund, Volition Capital Fund IV LP, more than the $250 million it raised for its previous fund in 2016. It also collected $200 million for its first-time “select” fund, Volition Capital Select Fund I LP, which will make follow-on investments into existing portfolio companies at later stages.
More managers are turning to such late-stage funds, sometimes called opportunity or growth funds, to maintain larger stakes in their high-performers.
Volition seeks to invest in high-growth companies providing e-commerce, consumer products, internet-enabled services and cloud software that are generating annual revenue of between $5 million and $50 million, and that have had no institutional funding to date. These companies usually are profitable or close to profitability.
“We focus on very capital-efficient businesses,” Managing Partner Larry Cheng said.
Investing in such companies is a lower-risk strategy than traditional venture capital, but it has been generating significant returns. Growth-equity firms generally outperformed both buyout and venture-capital funds over three-year, five-year and 10-year periods, according to Cambridge Associates, which analyzed data through June 30, 2018.
Volition, for example, has had strong returns which were boosted by PetSmart Inc.’s acquisition of e-commerce pet supply company Chewy.com for $3.3 billion in 2017, according to Mr. Cheng. Volition was Chewy’s first institutional investor when it backed the company in 2013.
Such successes have boosted interest in growth equity. Growth funds collected $50.76 billion globally in the first half of this year, up 52% from $33.3 billion in the same period in 2018, and the largest half-year total since at least 2014, according to Private Equity International.
As the economic boom continues, growth equity is expected to perform better than venture in a downturn, according to a note by Cambridge Associates.
“The strategy’s resulting exposure to lightly levered growing companies in expanding areas of an economy could prove quite resilient during downturns, one of which may not be far away given the maturity of the current economic expansion,” the note read.
For its part, Volition is expanding on a strategy it has pursued for the past decade. Founded in 2010 as a spinout of Fidelity Ventures, the firm is led by four managing partners: Mr. Cheng, Sean Cantwell, Andy Flaster and Roger Hurwitz.
The firm typically invests between $10 million and $50 million into U.S. companies. The larger main fund will enable the firm to back a few more companies and increase its check sizes when prudent, Mr. Cheng said.
Volition is interested in backing companies that are building out services around large platform companies, such as Salesforce.com, Amazon.com, Spotify or ServiceNow, Mr. Cheng said. For example, the firm recently provided a $12.8 million Series A round for GRAX, a Boston company that enables businesses to back up Salesforce.com data.
On the e-commerce front, Volition is seeing brands emerge in many categories and prefers companies that aren’t reliant on Facebook and paid-search customer acquisition methods, Mr. Cheng said. The firm recently backed Arteza Inc., an arts-and-crafts supplies company based in North Miami Beach, Fla., that is expecting to generate double-digit millions of revenue this year.
Volition also is searching across industries for companies that are improving the efficiency of procuring and delivering products, Mr. Cheng said. “We view every different type of movement as an opportunity,” he said.
Volition has already sold a company in the logistics category. Last year Jordan Co. acquired GlobalTranz Enterprises Inc., a provider of transportation logistics management services. Providence Equity Partners acquired GlobalTranz from Jordan Co. earlier this year.