Boston-based growth equity firm Volition Capital says it has raised a $250 million third fund, its largest to date. The firm is trying to carve out a niche by investing in small but established tech companies that have strong revenue growth and, ideally, have raised little to no outside capital.
It’s a sign of increasing specialization among tech-focused investors. Volition says it’s looking for software and services companies that have annual revenues of $5 million to $25 million, have yearly growth rates of 25 to 100 percent, and are at least 20 percent founder-owned.
“It sounds like an impossibility. But they exist all over the country,” says Larry Cheng, co-founder and managing partner at Volition. He notes that startups backed by VCs tend to get more attention, especially in “venture hubs” like the Bay Area or Boston. “We’re looking for companies built on customer revenue” rather than venture capital, he adds, and his team is looking around the U.S. and Canada.
Volition was born out of Fidelity Ventures in early 2010. The firm has made 20-some investments to date. Its portfolio companies include online pet retailer Chewy in Florida; mortgage firm LoanLogics in Pennsylvania; and supply-chain tracker TraceLink and marketing software firm Visual IQ in the Boston area.
If you’re wondering what exits look like for Volition’s companies, consider iPipeline. That’s a Pennsylvania-based maker of insurance and financial services software that was bought by Thoma Bravo in 2015. Or security company Ping Identity, which was recently acquired by Vista Equity Partners for a reported $600 million. (The mini-trend here seems to be private equity buying out smaller growth-equity investments.)
Volition sees itself as “small cap” growth equity—sort of the “micro-VC” (if anyone remembers that term) to mega firms like Summit Partners and TA Associates. But its targeted focus makes it different from most venture investors, including those with growth funds. “We’re not seed, early, or mid-stage. We’re not late-stage, pre-IPO. And we’re not a buyout shop,” Cheng says.
The tech investment firms that are closest in spirit to Volition are probably OpenView in Boston, Level Equity in New York, and Mainsail Partners in San Francisco, he adds.
While Volition is also looking at hardware-centric companies and Internet of Things applications, its sweet spot for investing remains in software—for both enterprises and consumers. “We continue to believe software-as-a-service is in the early to middle innings,” Cheng says. “It’s impacting your business, my business, and everything around us.”
