July 17, 2006
By Lori Hawkins, Austin American-Statesman

Virgo Capital has a $50 million fund aimed at companies that sell to the financial services industry

A new private-equity firm with a $50 million fund has arrived in Austin.

Virgo Capital is scouting services and technology companies that sell to the financial services industry.

The firm is led by former Goldman Sachs investment bankers Guhan Swaminathan, who is based in Austin, and Hemanth Parasuram, based in Oklahoma City.

Swaminathan said Virgo will focus on companies that are too far along for early-stage venture capital but not yet ready to make initial public offerings. Its typical investment will be in a profitable company with $10 million to $25 million in annual revenue.

Unlike venture capitalists, which usually back young, unproven companies, private-equity firms seek established companies that need money to grow.

“Later-stage investing is where many firms want to be right now, because there is less risk,” said Gene Lowenthal, a partner with the Austin office of Growth Capital Partners, a Houston-based investment bank.

So far in 2006, U.S. private-equity firms have raised $96.4 billion in 147 funds, an increase of 43 percent from this point last year, according to the July issue of Dow Jones Private Equity Analyst, an industry newsletter.

It could top the record of $177.9 billion raised in 2000, said Jennifer Rossa, managing editor of the Private Equity Analyst.

“For Austin, having another player in town is good news because it’s always great for companies to have another bidder,” Lowenthal said. “But the bad news for Austin is we still have this big gap in early-stage investing.”

Virgo chose Austin for an office because “it’s essential to the region we want to cover,” Swaminathan said. “It’s got a good investment community and a strong investment history, and we believe we can really build a strong network from Austin.”

Virgo said it is looking at opportunities in various areas, including default-management services, mortgage processing and nontraditional consumer finance.

“They’re not pure software companies, but we like IT-enabled services companies,” Swaminathan said.

Virgo plans to make four to six investments over the next several years.

“We like companies where we can deploy $10 million and have an impact,” Swaminathan said