Susquehanna Growth Equity fund backs Philly tech scene
SGE has invested about $1 billion in 50 private companies over the past 12 years, including Credit Karma, Outbrain, and Buildout.
Susquehanna International Group in Bala Cynwyd is well-known as a Wall Street trading firm whose founders have a thing for poker.
But Susquehanna also has an in-house equity fund that's invested $1 billion in 50 high-growth technology companies over the past 12 years.
Susquehanna Growth Equity invests in the software, information services, and financial sectors. What makes the firm different from many competitors is that it only invests for insiders at Susquehanna, and can hold for as long as 10 years.
"Being backed by a founder-run business like Susquehanna both gives us credibility with entrepreneurs and patient capital that is not focused on defined investment time frames," said David Badler, who is in charge of portfolio operations and growth. With 20 employees, SGE's team represent a tiny piece of Susquehanna's 2,000 total employees.
SGE has invested in names you might recognize: Credit Karma, Outbrain, and Buildout. Two of the partners, Josh Elser and Ben Weinberg, were recently highlighted in an industry trade publication.
Philadelphia-area investments include HMP Communications in Malvern and MMIT in Yardley. It helped establish U.S. headquarters here for Irish startup Phorest, which makes software for beauty salons and spas.
"It's a really exciting investment, they are the leading provider of software to manage hair and beauty salons in Western Europe and have been on a massive growth trajectory in the U.S., with their headquarters here in Philadelphia," said Weinberg.
Founders of the parent firm, Susquehanna Investment Group, include options trader Jeff Yass. My colleague Joe DiStefano wrote recently about the extremely private Wall Street trading firm.
How is SGE different from other Philadelphia-area growth equity firms such as LLR Partners and Newspring Capital?
"We are truly flexible capital. We invest between $10 million and $50 million in equity into companies, typically a minority stake, but sometimes controlling positions." said Weinberg. "Typical PE firms invest for three to five years, but we can hold for much longer. Right now we have 20 to 30 companies at any one time."
Sadly, the fund isn't open to outside capital.
The usual exit strategy for SGE is an IPO or selling to another private equity firm, as was the case in the sale of GlobalTranz to the Jordan Co.
"Because of the way we're set up and where the capital comes from, we work with entrepreneurs on their time frame. Some have been with us for 10-plus years," said Elser. "They double, or triple the size of their businesses and we are happy to be a part of that journey."
As an example, the firm cited HMP Communications, a Yardley company that specializes in digital media in health care.
What does SGE think of the rising amount of leverage – or borrowed money – used in private equity deals?
"Our companies are primarily focused on revenue growth rather than leverage or debt to drive returns. No doubt, overall debt levels in the market have increased, although it's abating over the past nine months as Fed tightens," Weinberg said.
SGE isn't worried about volatility in the stock market.
"There's been a lot of turbulence in public markets in past 10 weeks or so. We should remember though, there was a major tech sell off in 2016 affecting small and big names including Salesforce and LinkedIn. Stocks bounced back," said Elser. Private markets have made it through those cycles "with a bit less volatility," he said.
Has Philly's tech scene raised its game?
"I think it's definitely improved. Relatively speaking we've done a nice job of keeping more grads locally, we've had a good number of success stories" at SGE, Elser said.