Blackstone Closes First Growth Equity Fund

Blackstone Growth Closes Debut Fund with $4.5 Billion

Private equity firm Blackstone has announced the successful final closing of its inaugural growth equity fund, Blackstone Growth, securing $4.5 billion in commitments. These commitments originate from a diverse group of investors including family offices, entrepreneurs, endowments, institutional investors, pension funds, and other prominent financial entities.

Record-Breaking Fund

The firm characterizes this fund as the “largest first-time growth equity private fund ever raised.” This achievement underscores the increasing demand for growth equity investments and Blackstone’s strong position within the market.

Fund Origins and Leadership

Discussions regarding this fund began in the fall of 2019. Jon Korngold, the fund’s head, had recently joined Blackstone that year after an 18-year tenure at General Atlantic, where he held the position of managing director and served on the management committee.

Korngold immediately focused on team building and initiating initial investments utilizing Blackstone’s existing capital resources. At the time, the company’s assets under management were approximately $500 billion, a figure that has since grown to over $600 billion.

Recent Investments and Current Focus

Since the initial conversations, Blackstone Growth has made significant investments, notably a $2 billion investment in the dating app Bumble, which is now valued at $7 billion. Additionally, the fund realized $2 billion in proceeds from Bumble’s recent initial public offering (IPO). We spoke with Korngold to gain insights into the team’s composition, investment size, and perspective on the growing competition from special purpose acquisition companies (SPACs).

Team Size and Global Reach

TC: Could you detail the current size of the investment team?

JK: We currently have around 30 professionals dedicated full-time to Blackstone Growth. This is in addition to the extensive network of hundreds, potentially thousands, of individuals within the broader Blackstone organization who are available to support our efforts. Our team is strategically located in San Francisco, New York, and London, enabling a global investment approach.

Investment Strategy and Size

TC: What is the typical investment range for your team?

JK: Our average investment typically falls between $200 million and $400 million.

Fund Deployment Status

TC: What portion of the fund has been deployed to date?

JK: We initially utilized other capital pools prior to the availability of this dedicated fund. Now, with Blackstone Growth established, we’ve made several investments and deployed a substantial portion of the capital – likely exceeding 25%.

Follow-on Funding and Capital Reserves

TC: How much capital is reserved for follow-on investments? How does a fund of this magnitude operate effectively?

JK: We consistently anticipate and plan to provide continued support to our portfolio companies. Fortunately, we rarely encounter capital constraints. We do, however, maintain a significant reserve to facilitate the ongoing growth of these companies.

Many of our portfolio companies are already profitable. We specifically target businesses at the higher end of the growth equity spectrum, those that have potentially outgrown traditional growth equity firms but are not yet beyond Blackstone’s capabilities. This allows us to avoid the need for excessive capital reserves, as we don’t anticipate our companies facing imminent funding shortages.

The Bumble Investment

TC: The investment in Bumble, where you reportedly invested $2 billion at a $3 billion valuation, stands out. What drove this decision?

JK: We firmly believe that dating is a resilient activity. People will continue to seek connections regardless of economic conditions, and, as demonstrated by recent events, even during periods of quarantine. Prior to the pandemic, 40% of new relationships originated online, highlighting the increasing mainstream acceptance of online dating, fueled by mobile technology and its global reach.

Furthermore, we were impressed by the leadership of Whitney Wolfe Herd, Bumble’s founder and CEO. She is an exceptional entrepreneur and readily embraced the comprehensive resources that Blackstone could provide. The partnership has been remarkably successful.

Blackstone’s Value Add to Bumble

TC: Beyond capital, what specific contributions did Blackstone make to Bumble?

JK: Initially, we focused on solidifying Whitney Wolfe Herd’s leadership position across the entire company, unifying the previously separate operations of Badoo and Bumble. We then augmented the management team, bringing in 10 C-level executives, with the majority being women. We also added six independent directors, resulting in a board comprised of eight women out of eleven members.

We consolidated product development and marketing teams, significantly upgraded the technology infrastructure to enhance reporting and scalability, and streamlined the real estate footprint by centralizing operations. These efforts were all geared towards preparing the company for a successful public offering, including ensuring compliance with Sarbanes-Oxley regulations.

We also made substantial investments in product development, notably introducing video chat functionality before any other platform, which proved highly beneficial during the pandemic, with video usage increasing by 80%.

Benefits for Fund Investors

TC: Did the success of Bumble translate into benefits for investors in the fund?

JK: Yes, our investors did benefit from Bumble’s positive performance.

SPACs and the Competitive Landscape

TC: SPACs were not prevalent when you invested in Bumble. Do you believe Bumble might have opted for a SPAC route and gone public sooner? Do you view SPACs as a competitive threat?

JK: I don’t necessarily see SPACs as direct competitors. While they have faced criticism, they now have a legitimate role, particularly with the emergence of more credible sponsors. However, the current SPAC model often incentivizes completing a deal, even a suboptimal one, within a 24-month timeframe. This creates an arbitrage opportunity that hasn’t been seen in years.

While SPACs have a place in the market, they are unlikely to displace traditional IPOs, just as direct listings haven’t. The number of successful direct listings remains limited. Therefore, I don’t anticipate SPACs fundamentally altering the growth equity landscape.