JMI Equity Raises $1B for New Fund, Still Riding IT Spending Surge

JMI Equity, the private equity firm that specializes in software deals, says it has raised $1 billion in committed capital for its eighth growth equity fund—its biggest ever—and plans to keep on investing in growing companies with proven business models.

“The business-to-business economy is pretty healthy,” Paul Barber, JMI Equity managing general partner said by phone yesterday. Companies that sell software into the business-to-business economy are experiencing strong growth, he added, and that is where JMI’s strategy is focused.

So does Barber see signs of an investment bubble in software?

“Given the strength of the public markets, and private markets as well, valuation is an issue,” Barber said. “Quite frankly, it’s always an issue.”

The firm is highly selective, though, in its search for deals. Barber said JMI meets with 500 CEOs every year, and usually makes just 17 investments over the four-year investment cycle that is typical for a JMI Equity fund.

JMI_EquityThe firm continues to manage 15 investments made from its previous fund, JMI VII, which raised $875 million and still has enough capital for several more deals, Barber said. JMI realized one exit from that portfolio last year, when Ion Trading paid a reported $900 million to acquire Triple Point Technology of Westport, CT.

JMI, which is based in San Diego and Baltimore, MD, has raised over $3.1 billion since it was founded in 1992, and has made a total of 115 investments. More than 75 companies have exited JMI’s portfolio since inception, and the firm highlights Autotask, BigMachines, Eloqua, Gemcom, and ServiceNow as some of its best outcomes (without saying anything specific about its investment returns).

Today, JMI has 36 active investments, according to Barber, including San Diego-based Lytx (previously known as DriveCam); Santa Clara, CA-based WhiteHat Security; Undertone and BrightLine, both based in New York City; and Westborough, MA-based Courion.

“The trend toward the cloud continues to be the big megatrend of the decade,” Barber said. Most of the companies in JMI’s investment portfolio are cloud-computing companies, or have cloud-based strategies. The firm also has invested in 18 companies offering software as a service.

The firm’s investment strategy is predicated on the fact that big companies continue to increase their capital expenditures on IT products and services. “Every year, the dollars and percentage invested in software goes up, while the dollars and percentage spent on hardware goes down,” Barber said. “That was the fundamental thesis that we’ve been using since 1992.”

JMI officially launched its eighth fund in January. Existing investors, which include college endowments, foundations, pension funds, and family investment funds, account for about 95 percent of the $1 billion in capital commitments for JMI VIII, Barber said. He attributed that to three factors: JMI’s investment strategy, historical performance, and investment team, which remains largely unchanged, with seven general partners and 30 analysts, vice presidents, and other investment professionals.

Bruce V. Bigelow was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Follow @bvbigelow

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