Bain’s Patrick: ‘It’s better to start small and nail the model’

Former Massachusetts governor Deval Patrick, who leads Bain Capital’s impact fund, was speaking at PEI’s CFOs and COOs Forum 2018 in New York.

The second and third generations of Bain Capital’s impact fund, Double Impact, will be larger than its debut vehicle, according to Deval Patrick, a managing director at Bain Capital focused on impact investing.

Patrick, the former governor of Massachusetts, was speaking at Private Equity International’s CFOs and COOs Forum 2018 in New York on Thursday.

“We thought it’s better to start small and really nail the model and scale from there with a track record we could show,” he said, adding that there are about 15 people on his team. “It’s a big team for a modest fund but we are thinking ahead for Fund II and Fund III.”

Patrick joined Bain Capital in 2015 and spent a year with his team studying the impact field and selecting sectors of focus. The firm began fundraising for its fund, Double Impact, in the summer of 2016 with a $250 million target and held a final close on $390 million in early 2017.

One of its competitors in the impact space, TPG Capital’s Rise Fund, closed on $2 billion in the fall.

Patrick said that the Double Impact fund was oversubscribed and the firm could have raised twice as much.

“We started with LPs who were investors in other Bain Capital funds because it was they who had been asking the firm for this kind of product,” he said, adding that some of them wanted to commit about $100 million but Bain Capital wanted to avoid concentration and had to reach out to new investors. “We had to introduce ourselves to a whole new set of LPs. It took some time.”

In particular, institutional investors are waiting to see how Bain Capital performs before investing in Fund II, while family offices are more willing to be early investors in impact.

“If the pension funds for example were intrigued by and curious about impact, they were very focused on a competitive rate of return,” he said. “Some of the family offices were interested in a competitive rate of return but really focused on impact.”

The Double Impact fund has invested in three companies so far and has a couple of other deals that could close before the end of this month. The fund will make between 10 and 15 investments.