Fortissimo Capital has announced that it has completed the raising of a new $265 million fund. This is Fortissimo’s third fund. Fortissimo Capital is an Israeli private equity fund, based in Rosh Ha’ayin, which invests primarily in later stage Israeli related public and private technology companies. For the past six months the raising of Fortissimo’s new fund has been a fait accompli. In the past few months the closing of the fund has been delayed due to excessive demand to invest in it. The heavy demand resulted in the size of the fund being raised to $265 million from the originally planned $250 million.
“Actually raising the funds took several months,” said Fortissimo Capital founding and managing partner Yuval Cohen,” He recounted that the most difficult questions asked by investors was regarding, “The regional geopolitical situation.”
In contrast to Fortissimo’s two previous funds that totaled $80 million and $150 million, a large part of the latest fund came from financial institutions in the US and Europe. Investors include large US pension funds, and Cohen said, “They are backing us because of our strategy, team, and our performance.”
Fortissimo was founded in 2004 when it raised its first fund of $80 million. It founders Cohen, Shmoulik Barashi, Eli Blatt, Marc Lesnick, Yochai Hacohen and Yoav Hineman chose to focus on the high tech world in their “own back yard” later stage companies that were at the fork in the road where a change in management and injection of capital could help push them forward. The strategy very quickly proved itself and the first fund earned phenomenal returns by the standards of private equity funds with IRR returns of over 50% annually and an overall quintupling of amounts invested.
Fortissimo’s unique approach can be seen from Sodastream International Ltd. (Nasdaq: SODA) that provided the “home run” for the first fund. Fortissimo invested $10 million in the soda maker in 2007, and exited after its public offering with $200 million. The second fund also had some relatively successful exits such as the sale in 2011 of Cadent Inc., which develops 3D dental imaging solutions, and saw investors triple their investments in just two years. In this instance too, Fortissimo behaved like a venture capital fund, even though it is defined as a relatively solid fund.
The latest fund is far larger than the previous one. But will it achieve the same level of performance? Cohen said, “We could have increased the size of the fund by much more but it didn’t suit us to stay with our current strategy with a fund of this size. Our aim is to provide the same performance of the previous funds.”
According to Cohen, Fortissimo is looking for companies that have the potential to achieve returns of between fice and ten times the investment and not just double to triple the money, even though such returns are considered high for investors in later stage companies. Cohen said, “We want to invest in companies that will make more than double or triple the investment, or will at least have the potential. We want to find companies that will provide these capabilities.”
The most prominent investment carries out so far by the new fund was the acquisition of Starhom from Comverse Technology Inc (Nasdaq: CMVT) for $54 million. Some sources believe that Fortissimo also considered buying Alvarion Ltd (Nasdaq: ALVR; TASE: ALVR) although it is highly dubious whether that company could provide the kind of returns that Fortissimo is looking for.
The significance of this means foregoing deals in which the fund does not see the potential for high returns. This is what also happened several months ago with Ham-Let (Israel-Canada) Ltd. (TASE: HAML) with which Fortissimo held talks with Discount Corporation (TASE: DISI) for its sale but in the end was sold to First Israel Mezzanine Investors Fund (FIMI).
Cohen said, “The difference with the new fund is that there will be less small deals. But as with the previous funds we will invest in 8 – 10 companies overall but we will take a larger stake of the companies.”