After establishing its credit business earlier this year, The Riverside Company now has an official vehicle dedicated to making debt investments.
The mid-market private equity firm said Tuesday it closed the Riverside Acceleration Capital fund after hitting its $50 million fundraising target. The fund will pour capital into enterprise software companies with non-dilutive investments, giving those businesses an alternative to venture capital funding. The fund can also make add-on equity commitments, the announcement said.
“Software companies are the major disruptors in virtually every industry,” the firm’s co-chief executive officer Stewart Kohl said in the statement. “As software specialists, Riverside Acceleration Capital recognises those companies’ complex challenges, and can provide them with a level of capital that can meaningfully impact their growth.”
The fund manager, Jim Toth, told Private Debt Investor wealthy individuals, pension funds and family offices were among those that committed money to the vehicle, which carries a three-year investment period and a five-year harvest period. The new investors were “approaching half” of those pledging capital to the fund, he said.
In July, Private Debt Investor exclusively reported the launching of Riverside’s credit department. The firm tapped David Dobies, a former TCW managing director and a NewStar Financial founding partner, to lead the new division. David Kilpatrick from Citizens Bank and Tom Gillis from Silicon Valley Bank were Dobies’ first hires. Both Kilpatrick and Gillis worked with the credit head while at NewStar Financial.
Toth said the fund has already made three investments. The first two were to Austin, Texas-based OwnLocal, a digital ad platform, and New York-based Doctor.com, which lets patients search for healthcare providers. The third investment was not public yet, Toth said. Early on, the fund will do senior debt deals from $500,000 to $3 million, the range in which the OwnLocal and Doctor.com financings fell, he said.
Tuesday’s release did not disclose the deal size in which the fund may look to participate, though Dobies previously told PDI the new credit platform will invest in first lien and senior secured loans along with unitranche financings of up to $150 million. Of that total, $10 million to $50 million would come from Riverside, and transactions would be concentrated in North America with a select few in Europe, he said.
Pam Hendrickson, the firm’s chief operating officer and vice chairman of strategic initiatives, explained that the decision to focus on enterprise software companies reflected the growing significance of the industry and those companies’ early need for capital.
“Software has become such a huge part of GDP,” she said, noting that expenses for a software companies can rack up “pretty quickly”. She added the companies Riverside invests in will work with Toth, who was at Cirrus Ventures and on the technology venture capital team at Investor Growth Capital before joining the Riverside team.
No specific information about limited partnerships making fund commitments was disclosed other than that some of its investors were first-time committers.
Riverside is not the only debut credit fund that has sought capital recently. A number of traditional private equity firms have set up lending arms this year, including Adams Street Partners. Bill Sacher and Shahab Rashid, both formerly of Oaktree Capital Management, launched the business in January and are currently seeking between $500 million and $700 million in its first fundraise.
Riverside has also been on the trail for its private equity arm as well. The firm announced last month it closed its Riverside Micro-Cap Fund (RMCF) IV after it hit the $650 million hard-cap, as PDI sister publication Private Equity Internationalpreviously reported. RMCF IV’s target was $500 million. Its previous incarnation, RMCF III, raised $350 million in 2014. Through its equity arm, Riverside makes both control and non-control investments in companies with valuations of up to $400 million.
This article has been updated to include comments from Riverside's Jim Toth and Pam Hendrickson.