In the News
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By: Deborah Gage
June 6, 2011
Keeping LP Ranks Tight, Peterson Partners Closes On $50M for New Fund
Peterson Partners has closed on $50 million for Peterson Partners VI LP, Managing Partner Dan Peterson told VentureWire, and may raise another $10 million over the next six months.
Fund VI is down from the previous fund, which was $115 million, but this fund has no institutional investors, only individuals, which makes it harder to get past $60 million and still have high-quality limited partners, Peterson said.
The exclusion of institutional investors from Fund VI was deliberate, according to Peterson. All of the Salt Lake City-based fund's limited partners have either started or run large organizations, giving the fund "an investment club mentality ," he said.
"We like the notion of working with limited partners who are experienced businesspeople themselves, who know how to analyze a company and help be on a board and look at new investment opportunities from a due diligence perspective," he said. "Angels bridge family and friends with VCs, but that's not what we're about. We're lower- to middle-market private equity."
Peterson's investments usually range between $5 million and $8 million, although the firm has invested as little as $2 million and as much as about $20 million. It's best known for its investment in JetBlue Airways Corp.--JetBlue founder David Neeleman has been a limited partner--but it doesn't focus on any particular industry, geography or stage of company, although revenues are generally between $10 million and $50 million.
Instead, the firm looks for good management teams that it can work with and support, typically for four or five years. Peterson also limits the amount of debt i t places on a company, usually to twice the amount of Ebitda, or earn ings before interest, taxes, depreciation and amortization.
"A lot of people say we're stupid, or you can't get decent returns...but we've been in the top decile of returns since the beginning," Peterson said.
Within the last five funds, Peterson Partners has had more than 25 exits, including JetBlue and EnergySolutions Inc.
The firm sources deals through founder Joel Peterson (Dan Peterson's brother), who teaches entrepreneurial management at Stanford University's Graduate School of Business, and is active in search funds, where new MBAs raise $300,000 or $450,000 to find a business. When they do, their backers have first right of refusal to invest.
Peterson's investment in Asurion, for instance, came from a search fund. Asurion started as a tow truck business and now takes in over $3 billion in revenue per year by offering insurance on the loss of wireless handsets in addition to roadside assistance.
The terms for Fund VI are the same as F und V, with carried interest at 25%, except that the fund's annual fees start at 2% over the investment period and decline in two steps down to 1% as the portfolio matures.
Former Managing Partner Jordan Clements has left the firm to do a service mission for his church, Peterson said, while the firm added Travis Everton as a principal this quarter.
Investors in Fund VI include Row Moriarty, a former Harvard Business School Professor; David Checketts, former Madison Square Garden chief executive and principal owner of the Real Salt Lake soccer franchise; and Bob Nakasone, former chief executive of Toys R Us.
In 2008, Joel Peterson, a long-time angel investor, also founded Peterson Ventures, which invests in early stage companies. Dan Peterson and some other members of Peterson Partners' investment team work with Peterson Ventures as well.
http://petersonpartnerslp.com
It says it excluded institutional investors in favor of individuals with business experience.