Subscription Tech: A Promising Frontier for Private Equity Investors

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:

1. Recurring Revenue: Subscription models provide stable, predictable cash flows that PE firms covet.

2. High Growth Potential: The global subscription economy is projected to reach $1.5 trillion by 2025, according to UBS.

3. Scalability: Online technologies can rapidly expand with relatively low marginal costs.

4. Resilience: Many subscription services proved essential during recent economic uncertainty.

5. 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: Multi-strategy funds are combining traditional private equity tactics with venture capital-style investments to capture both early-stage growth and later-stage consolidation opportunities in the subscription space.

• Data-driven decision making: These funds are utilizing advanced analytics to assess key subscription metrics like customer acquisition costs, churn rates, and lifetime value, informing both their investment decisions and post-acquisition strategies.

• Cross-sector synergies: Multi-strategy funds are leveraging their diverse portfolios to identify and create synergies between subscription-based companies across different sectors, such as media, software, and e-commerce.

• Flexible funding structures: To accommodate the unique cash flow patterns of subscription businesses, multi-strategy funds are developing more flexible funding structures, including revenue-based financing and extended investment horizons.

• Technology focus: Many multi-strategy funds are prioritizing investments in subscription companies with strong technological foundations, particularly those leveraging AI and machine learning to enhance customer retention and personalization.
  
  

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 track records of customer retention and revenue growth, as these align well with the long-term wealth preservation and growth objectives of many RIA clients. However, RIAs must carefully navigate the complexities of private equity investments, including liquidity concerns and valuation challenges, to ensure they meet their fiduciary responsibilities.

• Democratization of access: RIAs are partnering with private equity firms and platforms to provide their high-net-worth clients access to subscription-based company investments that were previously limited to institutional investors.

• Risk management focus: When evaluating subscription-based companies, RIAs prioritize those with diversified customer bases and strong retention metrics to mitigate potential volatility and ensure steady cash flows for their clients.

• Education initiatives: Many RIAs are developing educational programs to help clients understand the potential benefits and risks of investing in private subscription-based companies, including the importance of customer lifetime value and recurring revenue models.

• Holistic portfolio integration: RIAs are integrating these investments into broader wealth management strategies, often using them as a complement to more traditional fixed-income and public equity allocations.

• Due diligence enhancement: To better evaluate subscription-based online companies, RIAs are expanding their due diligence processes to include specialized metrics like Monthly Recurring Revenue (MRR), churn rates, and Customer Acquisition Cost (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 ability to take a hands-on approach to value creation, these funds offer a unique way to participate in the growth of subscription-based online technologies while potentially achieving superior risk-adjusted returns.

Disclaimer

The investments and services offered by us may not be suitable for all investors. If you have any doubts as to the merits of an investment, you should seek advice from an independent financial advisor.

Under no circumstances should any material on this site be used or considered as an offer to sell or a solicitation of any offer to buy an interest in any investment fund managed by Legacy Capital. Any such offer or solicitation will be made only by means of the Confidential Private Offering Memorandum relating to the particular fund. Access to information about the funds is limited to investors who either qualify as accredited investors within the meaning of the Securities Act of 1933, as amended, or those investors who generally are sophisticated in financial matters, such that they are capable of evaluating the merits and risks of prospective investments.