Copilot Capital has secured $200mn from The Friedkin Group to invest in software scaleups in Europe. Co-founder John Messer says there's an underserved market of 60,000 SaaS companies in Europe to target.

‍New manager Copilot Capital secures $200mn for software buyouts in Europe

June 20, 2024 (Preqin News) – A new private equity fund manager, Copilot Capital, has secured $200mn from The Friedkin Group to invest in European software companies looking to scale up.

Copilot was co-founded by John Messer, Danny Friedkin, and Charlie Daniel. Messer has worked at UK private equity firms Tenzing, Alchemy Partners, and Inflexion, focusing on software buyouts. Friedkin is Principal of The Friedkin Group International, an arm of the Houston-based investment group focused on seeding private equity fund managers, where he works with Daniel.

Friedkin’s capital has allowed Copilot to start investing and build a track record, with its first deal a take-private of Relesys, a Danish HR software business listed on Nasdaq Copenhagen’s First North Growth Market, announced in May. Messer told Preqin News that Copilot is awaiting regulatory approval on a second deal.

Messer believes there is a big opportunity among Europe’s 60,000 software as a service (SaaS) companies that is being missed by established investors. ‘I kept seeing that there was a really nice gap in the market, businesses that were $5–12mn of ARR and growing really well, but break even. Heritage private equity funds want businesses with $1–2mn of EBITDA to control the risk. Growth firms don't mind doing a break-even business, but they won’t really play below $12–15mn ARR,’ he said.

‘We set this fund up to focus on them, sourcing on a pan-European basis. These businesses trade at pretty good valuations because there isn't really a buyer pool for them. We can scale these businesses up and sell them to the mid-market.’

Messer said there is a template for growth taking a software company from $10mn to $50mn of revenue, which includes looking at acquisitions, going to market strategies, pricing, scaling sales teams, and customer success, as well as areas such as data and AI. He said the main risks are miscalculating the financial position of a business that appears to be breaking even but is losing significant amounts of money and misjudging the target market.

Friedkin Group was attracted by the experience of the team and the opportunity in software, with plans to grow the fund management business over the long term. ‘They were looking for emerging managers who could take on, grow, and build a fund over multiple generations and take on external capital in the future,’ Messer explained.

Sector-focused funds remain a relatively small part of the private equity landscape, though software is one of the most targeted sectors. Preqin tracks 299 private equity managers with dedicated software funds, of whom 73 are in Europe and 185 in North America. There are 586 software-focused buyout funds, with less than two funds on average per manager, indicating the relative immaturity of the strategy.

_{The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin providing the information in this content accepts no liability for any decisions taken in relation to the above.}

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