03/24/2010

Vista Extends Reach to Smaller Tech Deals

Vista Equity is shopping a fund that would pursue small-scale buyouts of technology companies.

The San Francisco firm is still in the preliminary phase of marketing the vehicle, Vista Foundation Fund. It is telling investors that it plans to collect $400 million.

The early word is that the fund would maintain Vista's focus on technology-company buyouts, while mainly pursuing deals of $25 million to $50 million. Larger investments would be left to the shop's core funds, which have traditionally written checks of $20 million to $200 million - with the capacity for even bigger purchases.

The new capital-raising effort appears to reflect a sentiment at Vista that its core funds are missing some opportunities at the smaller end of the market. "They feel like with this fund they're going to be able to capture a lot of stuff" that was too small for its main vehicles, one source said.

Vista's most recent fund, Vista Equity Fund 3, held a final close in 2008 with $1.3 billion. Its second fund came about five years earlier, with $1 billion.

It's somewhat unusual for a technology-focused buyout shop to broaden its investment scope to include smaller deals, although there is some precedent for such a move. For example, Silver Lake Partners of Menlo Park, Calif., raised $9.3 billion for its third fund in 2007 while also absorbing the former Shah Capital. The ex-Shah team then collected $1.1 billion for a vehicle called Silver Lake Sumeru that concentrates on mid-size deals - something Silver Lake felt it had largely outgrown in the preceding years.

Based on Vista's performance record, its new fund should be an easy sell. According to Preqin, Vista Equity Fund 3 was already returning 19.6% as of Sept. 30, barely a year after its final close.

Vista was founded in 2000 by former Goldman Sachs banker Robert Smith, with the goal of investing in software and technology-enabled businesses - including special-situations deals involving profitable businesses facing operational or managerial challenges. The firm's first three funds received large chunks of their backing from Texas businessman Robert Brockman.