E277:Why the Best GPs Refuse to Raise More Capital
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
Deepak Sindwani, Co-Founder and Managing Partner of Wavecrest Growth Partners, shares why disciplined fund sizing and authentic founder relationships drive superior returns in growth equity. Despite raising their $450M Fund III in just four months and receiving interest for much more, Wavecrest intentionally capped the fund to maintain their strategy of sub-$50M equity checks, where they believe superior risk-adjusted returns exist. (00:42)
- Core Theme: The episode explores how maintaining strategic discipline in fund sizing, combined with a "treasure hunting" approach to find profitable, fast-growing companies in overlooked markets, creates sustainable competitive advantages in growth equity investing.
Speakers
Deepak Sindwani
Co-Founder and Managing Partner of Wavecrest Growth Partners, a growth equity firm that recently closed their third fund at $450M. Previously worked at Bain Capital and Vista Equity Partners, where he gained experience investing in the mid-market with $50-150M equity checks before intentionally moving down-market to focus on the sub-$50M equity check space. Has over 23 years of experience in private markets investing and leads a firm that has completed over 30 add-on acquisitions across their portfolio.
Key Takeaways
Strategic Fund Size Discipline Creates Competitive Moats
Deepak explains why Wavecrest deliberately capped their Fund III at $450M despite excess demand, because growing beyond sub-$50M equity checks would push them into a market that's "5-10x more competitive." (03:34) This disciplined approach maintains their ability to source 90% of deals directly rather than through competitive auction processes. (04:43) The key insight is that fund size directly determines deal size, which determines market competitiveness - and sometimes the highest returns come from resisting growth that would fundamentally change your strategy.
Build Long-Term Relationships Before You Need Them
Sindwani reveals that Wavecrest typically knows founders for 6-12 months before investing, with some relationships spanning years before a deal materializes. (19:19) They're currently closing a deal with a company they first met in 2021, demonstrating the power of patient relationship building. This approach works because they're "selling capital to people who don't need it" - profitable, growing companies have choices and will only partner with investors they trust and respect.
Master the Art of "Treasure Hunting" in Overlooked Markets
Growth equity success requires finding profitable, fast-growing companies (20-100% annual growth, averaging 50%) that aren't in obvious locations like Silicon Valley. (07:07) Wavecrest has portfolio companies in Syracuse, Montreal, San Antonio, and Amsterdam - businesses that have "taken the road less traveled." The strategy involves seeking "diamonds in the rough" or companies "underneath the leaf" that may not have invested in marketing or have prominent web presences.
Implement a "No Asshole Policy" for Sustainable Success
Sindwani emphasizes that their firm operates under a strict "no asshole policy" both internally and with portfolio companies, believing you can achieve high performance while maintaining collaborative, kind culture. (14:24) This isn't just about workplace happiness - it's strategic because life is too short and they can choose who to work with. The policy extends to both hiring decisions and investment choices, helping build a culture of 18-19 "passionate WaveCresters" who are both high-performing and collaborative.
Use Systematic Personality Assessment to Build Better Teams
Wavecrest employs three different assessment tools when hiring: the CCAT for aptitude testing (math, logic, spatial reasoning), the EPP for personality traits like competitiveness and goal orientation, and a modified Myers-Briggs to understand what motivates people and how to manage them effectively. (30:45) Sindwani shares how one founder even traded personality test results with him to assess cultural fit, demonstrating how systematic approaches to understanding people can improve partnership decisions and team dynamics.
Statistics & Facts
- 90% of Wavecrest's deal flow is directly sourced rather than through competitive auction processes, which becomes much harder above $50M equity checks where most deals become banked. (04:43)
- Portfolio companies average 50% annual revenue growth, with a range of 20-100% yearly growth, while maintaining profitability - the "best of both worlds" between venture-style growth and buyout-style stability. (07:07)
- Founders typically roll 75-80% of their equity when partnering with Wavecrest, demonstrating their belief that the best years are ahead while allowing some personal diversification. (18:04)
