Private equity firm finds Twin Cities has big pool of management talent

by Lee Schafer, Star Tribune

The sale of a majority stake in the Minneapolis software firm Jamf that was announced last month marked another milestone for investment firm Summit Partners, a private equity fund that was Jamf’s first institutional investor back in 2013.

While serendipity partly explains how Summit came to invest in Jamf, the Twin Cities has turned out to be one of this global firm’s greatest concentrations of investments. And that is not an accident.

The firm oversees about $15 billion in capital with offices in Silicon Valley and London, as well as Boston, but just in the last decade it has put more than $700 million into Twin Cities businesses. Summit declined to discuss returns, but as best as can be determined, the businesses they have invested in have all done at least fine, if not very well.

Some of Summit’s explanation for investing a lot in the Twin Cities, in a conversation with managing directors Greg Goldfarb and Peter Rottier, is a story about this region’s economy that sounds familiar. Rottier ticked off a list of strengths that includes economic diversity, as well as a big pool of management talent developed by all the big companies headquartered here that younger companies can dip into.

The conversation grew more interesting when they made their case that even with capital and talent flowing all over the globe, they still see differences in regional business cultures. They have sure liked what they found here. Maybe the simplest way to describe it is that to them, the Twin Cities area seems to have more than its fair share of managers who are really good at building durable growth ­companies.

There are a couple of things to be noted, of course. One, if your job is selling business managers on the idea of inviting you to invest it can make sense to say nice things about the hometowns of companies that look ­interesting.

They also admit that what they have come to believe about the Twin Cities business culture can sound a little squishy. Yet they insist it has been borne out in their experience. And their story starts with the biggest challenge a firm like theirs has — persuading business owners to take Summit’s money even when the entrepreneurs say they really don’t want it.

It sounds a little unusual, because a lot of entrepreneurs spend much of their time when they start out pitching to venture capitalists. Summit isn’t really a venture capital firm, though. It is called a growth equity firm.

A good candidate for Summit is in between a company just getting launched and a mature business, closer to a startup than 3M Co. but with a track record of revenue growth and probably profits, too. It is even better for Summit when they find a company run by executives who have created a successful company without wanting to take any outside investor money at all.

“That mind-set is just prevalent in the Twin Cities area,” said Goldfarb, manager director and a board member of Jamf. “It means we really have to earn the opportunity to invest, because the companies we work with have the luxury of many options. One of them is status quo, just keep on growing.”

A second but related trait the Summit team has noticed about Twin Cities entrepreneurs and managers is what Goldfarb called a “durable growth mind-set.”

If the CEO really wants the company to last, he or she has to be thinking of the long term, as well as planning for the quarter. The boss needs to be aggressive but cautious at the same time, to avoid outgrowing the capability of the staff or the size of the financial foundation.

Jamf, a producer of software to manage Apple devices, is a perfect example of what he is talking about. It had grown out of its roots in western Wisconsin and when Goldfarb met co-founders Chip Pearson and Zach Halmstad they were still running the company. One way they had been successful was by not wasting their time with venture capitalists whose money they didn’t need.

In an account Goldfarb tells and Pearson confirms, Summit had concluded that there would be good opportunities from the developing trend of big companies buying more and more Apple devices.

Upon learning of Jamf, Goldfarb and his colleagues volunteered to prepare a detailed analysis of Jamf’s chosen market of software to manage Apple devices, and at no charge. All Goldfarb asked for was a couple of hours to present it.

From that beginning, the relationship with Summit eventually led to a $30 million financing, giving Pearson and Halmstad more options including growing faster. Summit remains a ­minority shareholder.

A similar case study that ­Rottier discussed goes back to 2005, when Summit invested in a bootstrapped business called HelpSystems, an enterprise software provider. The founders were inactive and wanted out, while CEO Janet Dryer wanted to stay with the business.

Summit invested in the company, it was sold, and then Summit had a second chance and so invested again. As for how it worked out, from Dryer’s corporate profile we know that revenue increased from $19 million to $110 million during her time as CEO. Two years ago, the company was acquired by private equity firm H.I.G. Capital.

However, Summit wasn’t done with Dryer, another Minnesota CEO who seemed to be the kind of leader our region is blessed to have. Early last year Summit, with Dryer, acquired Perforce Software, based near Oakland, Calif.

“It had great technical talent,” Rottier said. “It had less great execution and professional management, which we’ve now built up under Janet’s leadership.”

The new sales management and customer support team, along with business development and other functions, is now up to 60 people with more recruiting going on, Rottier said. This deal gets counted by the firm as part of its commitment to Minnesota; one of the first things they did was let Dryer recruit that team in Minneapolis.

Source: Minnesota Star Tribune
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Related Summit Partners Portfolio Companies:
Jamf
Perforce Software
HelpSystems

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