Vista Equity Partners is unique in the private equity landscape for two primary reasons. The first is a complete focus on the enterprise software sector—a sort of specialization that’s more common for VC firms, perhaps, but rare in private equity. The second reason is Vista’s inescapable track record of success.
Between 2000 and 2012, Vista closed three separate buyout funds that together totaled nearly $6 billion in commitments. Each vehicle has posted an IRR exceeding 22% and all three rank in the top quartile of their respective benchmarks, according to the PitchBook Platform. That’s a pedigree few other firms can equal.
But we’re getting ahead of ourselves. More on some of Vista’s runaway success below. First, we’ll delve into the story of how founder Robert F. Smith has managed to build one of the most successful PE shops in the world in less than two decades.
Vista Equity Partners – Firm History
In the late 1990s, Smith worked on the technology team at Goldman Sachs. He seemed to have a knack for being around big companies and big names; according to this New York Times profile, Smith advised Apple on its decision to bring back Steve Jobs as CEO. In 1999, though, Smith departed Goldman to start his own shop (along with co-founder Brian Sheth). Not long after, Vista had raised its first billion for a new buyout fund. Today, the firm is based in Austin, with other offices in Chicago, Oakland and San Francisco.
The firm’s hiring practices in some ways differ from the industry norm. Vista deploys a proprietary personality test to screen potential employees, and it’s led to some unexpected results. According to the aforementioned NYT story, one of the firm’s best software salesmen used to be a roofer. Vista also makes a concerted effort to hire women and minorities to leadership roles, both in its own office and at its portfolio companies—surely in part due to Smith’s experiences as one of the few black men running his own multibillion-dollar PE shop.
From the outset, the firm was focused on investing in enterprise software companies, the area of Smith’s expertise after his time at Goldman. In the ensuing decade, Vista immediately emerged as one of the most notable new firms in the industry, and it did it the old-fashioned way: by posting seriously impressive returns. As each of those first three funds kept returning gobs of money to their LPs, Vista began to raise larger and larger pools of capital.
Now, after a decade and a half, Vista’s total AUM has grown to more than $20 billion; the firm has raised six buyout funds across two fund families, with two more vehicles currently in the fundraising process. And recently, Vista is rapidly increasing the number of deals it makes each year:
At Vista, investing begins and ends in the software industry, with a more particular focus on SaaS companies and providers of tech-enabled business & information services. The firm pursues the full gamut of different private equity deal types, including massive take-private buyouts, LBOs, recapitalizations, spinouts and growth investments.
Within the software sector, there are a few distinct signs Vista looks for when prospecting new portfolio companies. Those include experienced management, a clear customer-value proposition and strong market dynamics, as well as either recurring revenue or the possibility thereof, a defensible market position, and the potential for high profit margins.
Robert F. Smith, Founder, Chairman & CEO
If we weren’t clear earlier: This is Smith’s show. The Vista founder is as synonymous with his firm’s activity as any firm in the private equity industry. In his various leadership positions, Smith directs the firm’s overall strategy, governance and investor relations. Away from the office, he’s the chairman of the Robert F. Kennedy Center for Justice and Human Rights.
Brian Sheth, Co-founder & President
Smith gets the headlines, but Sheth has been by his side for the firm’s duration. In addition to serving on a number of boards of directors, Sheth also focuses on professional development for Vista’s personnel and the leadership of the firm’s portfolio companies. Before Vista, Sheth worked on tech buyouts at Bain Capital and in the M&A group at Goldman Sachs.
Vincent L. Burkett, Operating Principal
Burkett joined Vista in 2011 after previously working as executive chairman and CEO at Ventyx, a provider of business software that was for a time a Vista portfolio company. Before that, he was a co-founder and CEO of SourceNet Solutions, a provider of business process outsourcing services and another former Vista portfolio company. Now, Burkett sits on the firm’s investment committee and holds a handful of board seats.
Alan Cline, Principal
After five years as a vice president at Vista, Cline left in 2006 for a two-year stint at VC firm Accretive, only to rejoin Vista’s office in Austin as a principal in 2008. Upon his return, Cline was tasked with launching and serving as co-head of the Vista Foundation Fund, the firm’s business dedicated to investing in the lower middle market. He currently sits on the board of directors at Agdata, Bullhorn and Kibo, among other companies.
Rob Rogers, Principal
Another Foundation Fund co-head, Rogers is one of Vista’s most prolific employees in terms of board seats, currently serving as a director at companies like Bullhorn, PeopleAdmin, Telarix and Trintech and having previously been a member of the boards of Accruent, ADERANT, MicroEdge, Sunquest and more. He worked at Integra LifeSciences and Goldman Sachs before joining Vista in 2002.
As you would expect for a firm so focused on software, the vast majority of Vista’s recent activity has occurred in the IT sector. More than 70% of the firm’s investments during 2016 were in that space, according to the PitchBook Platform; about 55% of Vista’s targets in 2015 were in the IT industry, the only year out of the past dozen when that number’s dropped below 60%.
Overall, about 68% of all Vista investments since the start of 2005 have been in companies in the IT sector. The only other vertical in which the firm’s demonstrated any consistent interest is B2B, which represents nearly 23% of all activity during the same timeframe.
Those figures, though, only account for companies that are classified with IT as their primary industry. Open it up to include, say, B2B companies that also have an IT bent, and Vista’s strategy emerges in even starker relief. Last year, for instance, 35 of the firm’s 36 new deals were in some way related to software.
Geographically speaking, Vista operates almost exclusively in the US, with 86% of the firm’s deals occurring there since the start of 2005. Within the US, Vista’s been the busiest in Texas (13% of all US activity) and California (12.5%); regionally, the firm’s investments are spread out fairly equally between the West Coast, Mid-Atlantic, Southeast, South and Great Lakes.
Vista operates two primary fund series: Its flagship operation, which is currently in the midst of raising a new fund that could top $10 billion, and its small-cap Foundation Fund, which recently raised the upper limit on its latest offering to $2.75 billion. We’ll address the two series separately, starting with Vista’s main funds. The firm’s fifth fund is still in