ImpactAlpha, September 19 — San Diego-based private equity impact investor HCAP Partners invests in underserved lower middle-market businesses. By working with businesses to improve the quality of their jobs, the firm aims to prove to investors that better workplace practices can attract and engage better employees, which increases enterprise value.
HCAP has raised $353 million for its fifth fund from Ford Foundation, family offices and financial institutions. HCAP says the fund exceeded its initial fundraising target by over 40% and is more than twice the size of its predecessor fund.
The fresh funds will allow the fund manager “to expand our portfolio, providing creative and flexible deal structures to growth-stage companies,” HCAP’s Tim Bubnack said. The fund will make mezzanine debt and equity investments, ranging from $3 million to $25 million in software, healthcare, services and manufacturing businesses.
HCAP, which has historically targeted deals mainly in the Western U.S., will search for investment opportunities on a national scale.
Fund structure
The fund will operate as a Small Business Investment Company, or SBIC, under the U.S. Small Business Administration program. This means HCAP’s fund will be able to combine private capital, alongside additional capital borrowed at lower cost using SBA-guaranteed securities, to make equity and debt investments in qualifying small businesses.
This strategy “provides substantial advantages for LPs,” HCAP’s Jennifer Neivert told ImpactAlpha, “and allows us to invest more capital in small businesses.” HCAP has backed more than 60 companies via four funds.
