As investors seek new avenues to diversify portfolios and maximize returns, private equity funds focused on new and established American legacy business subscription-based online technologies are emerging as an increasingly attractive option. This sector has seen tremendous growth in recent years, driven by changing consumer behaviors and accelerated digital transformation across industries.
Key Trends and Market Dynamics
According to PitchBook’s 2023 Annual US PE Breakdown report, private equity activity in the technology sector remained robust despite broader market challenges:
- Technology deals accounted for 21.2% of total US PE exit value in 2023
- Software companies continued to lead the segment, propelled by secular growth trends
- PE firms are increasingly targeting companies with recurring revenue models like SaaS
The report notes that well-capitalized PE firms are eager to pursue high-quality tech companies, especially those with predictable subscription revenue streams. This aligns perfectly with the rise of subscription-based online technologies across verticals like enterprise software, consumer services, edtech, and more.
Why Subscription Technologies Appeal to PE Investors
There are several compelling reasons why PE funds specializing in subscription-based online technologies are attracting accredited investors:
- Recurring Revenue: Subscription models provide stable, predictable cash flows that PE firms covet.
- High Growth Potential: The global subscription economy is projected to reach $1.5 trillion by 2025, according to UBS.
- Scalability: Online technologies can rapidly expand with relatively low marginal costs.
- Resilience: Many subscription services proved essential during recent economic uncertainty.
- Exit Opportunities: Strategic buyers and public markets continue to highly value these companies.
Industry Trends Favoring PE Investment
The alternative investment landscape is evolving in ways that make subscription tech an appealing target:
- Investor Appetite: Despite market volatility, institutional investors plan to maintain or increase alternatives allocations.
- Flight to Quality: Over 60% of investors expect fewer new fund launches, gravitating toward established managers.
- Strategic Focus: Nearly one-third of PE managers are exploring options around future operations and ownership.
- Talent Management: Over 50% of managers rank talent retention as a top-3 priority.
- Product Expansion: PE firms are increasingly moving into opportunistic and special situations investing.
- ESG Integration: Growing investor demand is driving more managers to develop formal ESG policies.
Accredited Investors
Accredited investors are increasingly viewing private equity investments in subscription-based online companies as an attractive opportunity for portfolio diversification and growth potential. Investors are actively increasing their allocations to private markets, particularly in private equity. This aligns well with the growing trend of private equity firms targeting companies with recurring revenue models like software-as-a-service (SaaS) businesses. Accredited investors view private equity as a top choice for generating strong returns in the coming years, and subscription-based online companies offer compelling characteristics like predictable cash flows, high growth potential, and scalability that appeal to both accredited investors and private equity firms.
- Accredited investors are increasing allocations to private equity investments, including those focused on subscription-based online companies
- They view private equity as a top choice for generating strong returns
- Subscription-based online companies offer attractive qualities like predictable cash flows and scalability that appeal to accredited investors
- The alignment between accredited investor interests and private equity strategies in this space is driving increased activity and investment
- Accredited investors see private equity investments in subscription-based online companies as an opportunity for portfolio diversification and growth potential
Family Offices
Family offices, with their patient capital and often multi-generational investment horizons, are well-positioned to weather the initial cash flow demands and support the sustained growth these companies require. They frequently take a hands-on approach, leveraging their extensive networks and operational expertise to add value beyond just financial capital, often seeking to actively influence the strategic direction of their portfolio companies.
- Direct investment focus: Many family offices are bypassing traditional private equity funds and opting for direct investments in subscription-based companies, allowing for greater control and potentially higher returns.
- Sector-specific strategies: Family offices are developing specialized knowledge in particular subscription niches (e.g., SaaS, digital media, e-learning) that align with their expertise or interests, enabling more informed investment decisions.
- Long-term partnership approach: Unlike traditional PE firms with fixed fund lifespans, family offices can offer subscription-based companies longer holding periods and more flexible exit timelines, aligning well with the gradual value creation in subscription models.
- Tech-enabled due diligence: Family offices are investing in advanced data analytics capabilities to better evaluate key subscription metrics and forecast potential growth trajectories of target companies.
- Cross-portfolio synergies: Some family offices are strategically investing in complementary subscription-based businesses across their portfolio, creating opportunities for knowledge sharing, operational efficiencies, and potential M&A activity.
Multi-Strategy Funds
Multi-strategy funds are increasingly diversifying their portfolios by targeting private equity investments in subscription-based online companies. These funds recognize the potential for stable, recurring revenue streams and high customer lifetime value that subscription models offer. By leveraging their expertise across various asset classes and investment strategies, multi-strategy funds are well-positioned to identify, value, and support high-growth subscription businesses. They often employ a hands-on approach, providing not just capital but also operational expertise to help these companies scale and optimize their subscription offerings.
- Hybrid investment approaches: Combining private equity tactics with venture capital–style investments to capture both early-stage growth and later-stage consolidation opportunities.
- Data-driven decision making: Utilizing advanced analytics to assess key subscription metrics like customer acquisition cost, churn rate, and lifetime value.
- Cross-sector synergies: Leveraging diverse portfolios to identify and create synergies between subscription companies across sectors.
- Flexible funding structures: Employing revenue-based financing and extended investment horizons to match subscription cash flows.
- Technology focus: Prioritizing subscription businesses with strong AI/ML capabilities to enhance retention and personalization.
Registered Investment Advisors
Registered Investment Advisors (RIAs) are leveraging their deep understanding of client needs and risk profiles to selectively incorporate these investments. They often focus on companies with proven customer retention and revenue growth track records, aligning with long-term wealth preservation and growth objectives. RIAs must navigate liquidity constraints and valuation complexities to fulfill their fiduciary responsibilities.
- Democratization of access: Partnering with PE firms and platforms to grant high-net-worth clients access to subscription deals previously limited to institutions.
- Risk management focus: Prioritizing companies with diversified customer bases and strong retention metrics to mitigate volatility.
- Education initiatives: Building programs to help clients understand subscription economics, including customer lifetime value and churn.
- Holistic portfolio integration: Positioning these investments alongside fixed income and public equities for balanced allocation.
- Due diligence enhancement: Expanding processes to include metrics like MRR, churn rate, and CAC.
Legacy Capital Fund: A Leading Option for Investors
For accredited investors looking to capitalize on these trends, Legacy Capital Fund stands out as a compelling choice. As a PE firm specializing in subscription-based online technologies, Legacy Capital brings:
- Deep sector expertise
- Proven track record of identifying high-potential companies
- Focus on businesses with strong unit economics, scalable platforms, and loyal customers
- Operational experience to accelerate portfolio company growth
- Extensive industry network to drive value creation
By leveraging these strengths, Legacy Capital Fund aims to generate superior risk-adjusted returns for investors in the dynamic subscription technology space.
Wrap Up
Accredited investors, RIAs, family offices, and multi-strategy funds seeking exposure to this dynamic sector would be wise to explore private equity options. With their hands-on value-creation approach, these funds offer a unique way to participate in subscription-based online technology growth while potentially achieving superior risk-adjusted returns.