We wrote earlier this week about MicroAcquire, a company that was building a marketplace for start-ups that are not likely to see the IPO or strategic acquisition path in their windshield. Today we note that another player is eager to get in on this “micro” action. Camber Partners is a San Franciso growth equity (aka private equity) firm intent on playing in the “stranded” start-up space.
Camber announced earlier this month that it had raised a $100 million debt fund. The new fund is designed to buy companies outright or take majority stakes in them. The fund’s strategy is to strengthen the acquired companies using Camber’s own data science technology. And then flip them within five years.
Co-founder Scott Irwin launched Camber in April of 2020. He did so out of frustration with the current venture model, which he says requires start-ups to scale up unnaturally to meet VCs’ metric hurdles. As he says, “100% growth isn’t interesting. It’s gotta be 200%. Earning $100,000 a month isn’t interesting. It has to be a million. A good solid management team that’s going to learn over time and grow the business isn’t interesting. It’s instead, ‘How do we jump ahead faster and hire more experienced people?’”
VCs Leaving Good Companies in the Dust
Irwin’s view and presumably the view of his partners and backers is that this forced model on early-stage start-ups can yield spectacular success and also leave many quality companies and management teams in the dust.
Irwin has a couple of partners who share his point of view. Together with co-founder and long-time operator Jason Hable and Scott Ernst, the company’s VP of data and engineer, the company plans to deploy its data platform called Gemini. The company is seeking to isolate companies in North America and around the world with a specific profile and then leverage Gemini to take those companies to a new level.
Those companies that fit Camber’s profile will offer a “well-loved product” and has “strong, organic inbound” interest from prospects. Those same targets are generating between $3 million and $10 million in ARR and are struggling with the go-to-market approach. And they’ve already begun the process of investing in Scout APM and SE Ranking. Camber did not disclose the terms of its deal with SE Ranking, an SEO software company.
Irwin says a typical investment will be “$10 million to $25 million checks.” With a $100 million fund, the company anticipates making between four and eight investments over time.
What’s Wrong with a $200 Million Exit?
As those investments progress and gain momentum and scale, Irwin expects typical SaaS exits. That could mean sales to the super large PE companies like Vista or Thoma Bravo. Or it could involve public offerings if there’s a superstar property. As Irwin puts it, “We don’t need 50 times our return, we try to get very aligned with a team that a $200 million exit can be life-changing and a strong return for everyone involved.”
Camber would be considered a small player on a field that includes really large operators such as Vista Private Equity and Thoma Bravo, which has plans to raise $35 billion in its next round. We’d expect Camber to play at the lower end of the market and find niche operators. But there are certainly plenty of target companies for Camber to identify and acquire even at their size and scale. We are aware of some just in the local search space that might fit the profile. We’ll see if Irwin and his Camber associates come knocking.