News Flash: Wednesday, January 24th, 2017, family offices and institutional investors gathered at The Yale Club to learn about the Michaelson Capital Partners Specialty Finance Fund II, LP, (MCSFF II) a private equity fund that provides growth financing to accelerating growth entrepreneur-led technology companies.
John Michaelson, Founder & Chief Investment Officer has been providing structured capital with a focus on equity upside to high quality growth companies since 1994, and the Michaelson team has been executing this strategy for 15 years. Historical net returns are in the mid-teens. Returns are uncorrelated to credit and equity markets.
Larry Jones, CEO, began his relationship with MCP as an investor in the Michaelson funds in 2007.was impressed with the risk management culture and benefited from the stellar performance in 2008. Larry states, "At this stage of the economic cycle, the risk/reward profile of the Michaelson debt and equity strategy is compelling".
The team is adept at identifying technology themes and sub-themes within the innovation supercycle as well as in selecting the companies with the greatest probability of success and designing the capital structure which is in the interest of both entrepreneurs and investors. MCSFF II employs a partnership culture. The team is skilled in actively assisting portfolio companies on their path to growth.
The strategy uses senior secured lending with full charge over collateral; low loan to enterprise value ratio (10%-20%). These are cash paying amortizing loans. The fund offers investors quarterly income distributions of 7% annual target, hence investors are paid to wait for the equity upside. Investors should see 100% return of capital within five years from the end of the commitment period. The LPs also receive a 7% preferred return prior to the distribution of any carried interest to the General Partner.
Compared to private equity, MCSF II fund strategy has superior preservation of capital characteristics by being senior in the capital structure and much shorter in duration. Compared to private debt, there is potential for capture of significant equity upside.
Family offices are now among the biggest set of competitors in the market to acquire stakes in direct investments in disruptive technology companies that are at a critical inflection point that require growth capital. Michaelson can be considered an institutional partner to help access high quality deal flow, where the family offices can leverage the due diligence and experience of team. MCSFF also offers the opportunity for co-investments (fund investors will be given preference) and can also be considered a strategic relationship to help manage the risk in direct investment portfolios.