Why Vista Equity is Eating the World

The Austin-based private equity firm is about to become one of the biggest.

There is a new giant in private equity land, and it lives in Austin, Texas.

Vista Equity Partners, now on the fundraising trail with two super-sized offerings, will, if it hits its targets, become roughly the sixth largest private equity firm in the world.

And hit its targets it will. For limited partners, gaining an allocation to a Vista fund is like gaining admission to “Hamilton”—you jump up and down, waive your ticket in the air and scream.

With a reported goal of $10 billion for Vista Equity Partners VI and $2.5 billion for Vista Foundation Fund III, the firm founded in 2000 by Robert Smith is poised to raise an astonishing $21.2 billion within a five-year period, by my calculations.

How did Vista get so popular, so fast? By combining three things that LPs love – focus, performance and evidence that the performance was achieved by skill not luck.

Welcome to the Big League

The combined fundraise will put Vista right behind the top five PE firms as ranked in the most recent PEI 300 – Carlyle ($31.9 billion), TPG ($30.3 billion), KKR ($29.1 billion), Blackstone ($25.5 billion) and Apollo ($21.2 billion). It puts them ahead of CVC Capital ($21.1 billion).

Carlyle, Blackstone and the like are far larger firms overall because of their other business lines in real estate, hedge funds and debt. The PEI rankings only count capital raised for direct private equity investing. For a firm that started 2011 with roughly $2.5 billion in AUM, the rise to the big leagues has been impressive.

Vista’s Recipe for Success

Focus – Vista only does software deals, targeting companies that are well beyond the startup stage and can benefit from the operational expertise that Vista says it brings to the table.

Performance – All four of Vista’s funds raised before 2011 have delivered net IRRs above 22%. All four are in the top quartile, according to Preqin. With a track record like that, Vista is getting while the getting is good – its target for Fund VI is four times the size of the $2.5 billion fund it raised as recently as 2011. The firm has also launched a credit business in addition to its mid-market Foundation platform.

Skill – Vista trumpets a proprietary approach to creating value that it calls its “Vista SOPs,” or specific operational improvements. It clearly has helped change the fortune of dozens of mid-sized software companies in its earlier funds. Now it must prove that the SOPs can be as transformational for much larger companies like Solera Holdings, which Vista recently acquired off the public market for $6.5 billion.

The rise of Vista was also made possible by the explosive growth of the software industry and, more broadly, by the penetration of software into every human endeavor. In 2011, tech investor Marc Andreesen said, “Software is eating the world.” The comment is proven more and more accurate by the day, and no one in private equity is enjoying the feast more than Vista.