By Gillian Tan
Lead Edge Capital raised $1.95 billion for its largest fund to date, to make bets on software, internet, consumer, and tech-enabled service companies.
The firm, which has offices in New York and Santa Barbara, California, favors companies that have recurring revenue and those that are profitable on an Ebitda basis, founding partner Mitchell Green said in an interview. The new vehicle, Lead Edge Capital VI, will be deployed over three years.
“We think valuations have gotten ahead of themselves and they’ll become more realistic,” said Green, whose firm aims to write equity checks of $15 million to $200 million and seeks a seat on the board around 60% of the time. “It’s a good environment to invest in as there’s less competition today than there was five months ago.”
And if a downturn occurs, Green said he’s ready to pounce. “Investing in a recession is how fortunes are made,” he said.
The firm searches for companies that meet criteria including demonstrated capital efficiency and a diversified customer base; $10 million or more in revenue; revenue growth at an annualized pace of 50% or above; gross margins of 70% or higher and at least 90% gross retention. Lead Edge can invest up to 25% of its latest fund in public equities.
“We’re always looking for the best risk-adjusted returns and we think having the opportunity to invest in public markets makes us better, more disciplined private-market investors who are more thoughtful around valuation,” Green said.
Lead Edge counts unicorns including Hinge Health, LaunchDarkly, ID.me and Benchling among its current holdings. Its past investments include Spotify Technology SA, Toast Inc., Figs Inc., Asana Inc. and Bumble Inc. The firm has about $5 billion under management, Green said.
Green said his firm has a more “hands-on” approach with founders than rivals. He pointed to a network of over 500 executives, all of whom are limited partners or investors in its funds alongside institutions including the San Francisco City & County Employees’ Retirement System, Teacher Retirement System of Texas and the University of Virginia’s endowment.
“Don’t invest in our fund unless you’ll help our companies” is the message Green broadcasts to Lead Edge’s entrepreneur backers. Asana found its audit chair Sydney Carey through the Lead Edge network, he said.
Meg Whitman, the former chief executive officer of Hewlett-Packard Co. and EBay Inc., has backed three Lead Edge funds including its most recent.
“I like their approach of involving their investors,” Whitman said in an interview. “They’re always sending opportunities to help or make introductions.”
Whitman has made customer introductions for at least one of the firm’s portfolio companies, Arrive Logistics. The former California gubernatorial candidate who has been nominated as the U.S. ambassador to Kenya said she has connected potential candidates with roles at Lead Edge portfolio companies, and been involved in CEO coaching.
