Vistara sees opportunity post-SVB as traditional lenders and VCs pull back.
Vancouver-based Vistara Growth has raised over $200 million CAD for its latest technology-focused private credit fund.
Vistara’s initial closing of Fund V was anchored by increased commitments from existing limited partners (LPs). Per Vistara, the fund’s LPs include undisclosed BC family offices, successful entrepreneurs from the tech, real estate, and hospitality industries, and private foundations.
This amount brings the growth-stage tech investor over a third of the way toward its $540-million target for Fund V. As many venture capital (VC) funds and startups are struggling to fundraise, Vistara—which operates between traditional bank lenders and VC firms—claims it was able to close this $200 million in just four weeks.
According to Vistara, the firm was able to close this $200 million in just four weeks.
“We work with banks, we work with venture funds, and fill in that gap in between them,” Vistara founder and managing partner Randy Garg told BetaKit in an exclusive interview. During the market downturn, in the wake of the collapse of Silicon Valley Bank (SVB), Garg noted that “[this] swim lane has now gotten quite a bit wider.”
Given that the amount of capital available to growth-stage tech firms has fallen and private credit has become a more attractive asset class to investors, Garg believes that the timing is perfect for Vistara to launch and start investing out of its latest fund.
“The category that we’re in is the right time, the gap that we’re filling in the marketplace has never been more evident, our track record speaks for itself, and we’re also leveraging deal flow that we’ve built up over eight-plus years now,” argued Garg, who expressed confidence that Vistara will be able to hit its fundraising target during the first half of 2024.
Garg first founded Vistara in 2015 when he spun it out from a Beedie family office fund that he was managing at the time. He brought on Vistara partner Noah Shipman shortly afterwards. With Vistara, Garg continued the same private credit strategy that he was deploying at Beedie. Since then, Vistara has been providing growth capital to mid and later-stage tech firms across North America. To date, the firm has secured nearly $700 million across its five funds, predominantly from non-institutional sources.
Vistara, a Sanskrit word that translates roughly to “expansion,” provides growth capital to tech companies, such as debt, convertible debt, and structured equity. The firm creates tailored investment structures comprised of debt, equity, or some combination of the two to help tech companies finance organic growth, mergers and acquisitions, or shareholder liquidity initiatives.
RELATED: Timia Capital and Arena Investors aim to fill SVB lending gap with new $100-million USD venture
Vistara targets enterprise software companies, including B2B SaaS, FinTech, artificial intelligence, cybersecurity, cloud and IT infrastructure, and healthtech businesses with between $10 million and $100 million in annual recurring revenue. While Vistara typically invests in venture-backed tech companies at the Series B stage and beyond, it also finances businesses that have taken a different path, such as bootstrapped firms.
Vistara typically does eight to 10 deals per year, most of which are debt-oriented and led by the firm as the primary investor. Its current portfolio includes Alida, Brim Financial, D3 Security, Reach, Sama, and Zafin, while Vistara’s exits include Martello and Mobify.
Even though Vistara’s $540-million Fund V is more than twice the size of its $260-million fourth fund, Garg said that it will only support slightly more firms, but write bigger cheques. Vistara plans to back 18 to 24 companies across North America through Fund V, deploying $10 million to $30 million per investment over the next two and a half years or so, with a 70 to 30 percent split between the United States (US) and Canada. Roughly ninety percent of Fund V will go towards new investments, with 10 percent reserved for follow-on portfolio support.
Today, LPs care more about the amount of capital fund managers are returning to their investors than the paper gains they have seen. As Shipman told BetaKit, one advantage of Vistara’s model is that the cash returns it has been able to realize and pay back to LPs, including via quarterly distributions.
RELATED: PitchBook analysts say 2023 VC funding is “pretty much shot,” long-term recovery appears likely
“We have the benefit of having shown our investors that we can both put the capital to work, but also earn those returns and get the capital back to our investors in a timely, predictable manner, and that’s given them the confidence to reinvest increasing amounts with us,” said Shipman.
According to Garg and Shipman, Vistara has seen zero losses of capital across its 34 investments to date and produced a net annualized internal rate of return of 17 percent across its first four funds. Unlike some other private credit funds that use leverage, Garg noted that Vistara’s funds and its returns are “unlevered.”
Garg credited Vistara’s core group of LPs, which he said have backed the firm continuously based on its performance and track record, for helping it close $200 million in roughly a month, a feat he argued is “pretty unique in this market, or any market for that matter.”
Securing the remainder of its $540-million target will likely require Vistara to broaden its LP base to include institutions as well as other investors from outside of BC, including in Eastern Canada, the US, and potentially beyond.
“Our strategy works well in all seasons.”
– Randy Garg, Vistara Growth
SVB’s collapse earlier this year left a void in the tech lending space, and following the slew of US bank failures this year, regulatory scrutiny on banks and their lending practices has ramped up, leading many to pull back and conserve cash.
Meanwhile, VC investment remains down from its 2021 peak and has kept cool in recent months. As funding from both sources has become more difficult to secure, Shipman said that the demand for the types of growth capital solutions that Vistara provides has increased.
Within the increasingly popular private credit space, Vistara claims to have a differentiated strategy. According to the firm, Vistara provides investors with “the benefits of downside protection, regular cash income distributions, and an inflation hedge through its floating-rate loans, while also providing the upside of investing in the technology sector through warrants and conversion features.”
Unlike venture debt providers, which often lend to tech companies after they close equity funding rounds and effectively underwrite the strength of their investors, Garg noted that Vistara focuses on each firm’s creditworthiness, underlying unit economics, and how quickly they can become self-sufficient. This enables Vistara to do both sponsored and non-sponsored deals.
In the current market environment, Shipman argued that the chance to earn “equity-like returns for debt-like risk” has made private credit options like Vistara more appealing.
“Our strategy works well in all seasons,” argued Garg.
Feature image courtesy Vistara Growth.
.
