Blackstone’s ‘largest first-time growth fund’ in context

Blackstone said this month it had wrapped up fundraising for its debut growth equity fund on its $4.5 billion hard-cap.

Blackstone Growth is the “largest first-time growth equity private fund raised in history”, according to the firm, which cited third-party data. Blackstone had a target of between $3 billion and $4 billion for the vehicle, as reported by sister title Buyouts.

Growth-focused fundraising, in which firms back companies at the intersection of venture capital and traditional buyouts, was on the up in 2019 with a total of $103 billion of capital raised and represented the second-most popular strategy after buyouts. The average size of growth funds also rose by about 90 percent to $555 million in 2019, compared with $293 million in 2017.

The picture changed last year with fundraising for growth equity vehicles nearly halving to $58 billion – the largest decline of any PE strategy – according to Private Equity International’s Fundraising Report 2020.

That could change this year as firms double down on the strategy. EQT is set to launch its debut growth vehicle, which is seeking more than €1.6 billion. Carlyle Group‘s multi-year fundraising campaign reportedly includes a growth equity vehicle dedicated to mid-size private equity deals in North America.

Growth funds fill a gap in the market for companies that are not yet ready for an initial public offering and are a bit too mature for venture capital, Jean-François Le Ruyet, a partner at Paris-based fund of funds Quilvest Capital Partners, told PEI: “Investors are attracted to growth funds because they usually clean the cap table – enabling a lot of venture firms and investors from different rounds to exit, resulting in an easier-to-understand shareholding structure.”

He noted that growth funds are a “relatively new” strategy, which makes them harder to assess: “As investors, we need to scrutinise these funds heavily and really understand what the team is doing and what the equity story is, and make sure it’s not just the hype of doing growth and tech for the sake of it.”

Blackstone first hinted at plans for a growth strategy in 2017. Prior to raising a dedicated growth equity vehicle, the firm was investing in growth companies through its Tactical Opportunities funds, as previously reported. Blackstone hired ex-General Atlantic executive Jon Korngold in 2019 to launch the platform and that year assembled a team of about 20 executives.

Capital raised for Blackstone’s debut growth equity vehicle will back fast-growing companies in the financial services, enterprise and consumer technologies, healthcare and consumer sectors. Average investments from the fund are in the range of $200 million to $400 million, Korngold said in an interview with TechCrunch. Blackstone Growth’s acquisitions include MagicLab, owner of dating app Bumble; oat milk company Oatly; enterprise software business ISN; and music-to-internet company Epidemic Sound, which it invested in alongside EQT.

Here are the largest growth equity funds according to PEI data: