The private equity giant Blackstone is today announcing the final close of its first growth equity fund -- Blackstone Growth -- with $4.5 billion in capital commitments from a wide range of family offices, entrepreneurs, endowments, strategic institutional investors, pension funds and other big wheels.
The outfit says it's the "largest first-time growth equity private fund raised in history."
We knew this was coming back in the fall of 2019, when we first talked with Jon Korngold, the head of the new fund. At the time, he was a recent hire, having joined that same year from General Atlantic, where he spent the previous 18 years of his career, including as a managing director and a member of its management committee.
Korngold was also in building mode, trying to assemble a team, and writing some early checks off of Blackstone's sizable balance sheet. (The company had assets under management at the time of roughly $500 billion; it now manages just north of $600 billion.)
Because a lot has transpired since that conversation, including a $2 billion bet on the dating app Bumble that's currently worth a stunning $7 billion -- this atop $2 billion in proceeds from selling shares at Bumble's IPO last month -- we asked Korngold to catch us up on the team, what size investments they are making and whether Blackstone views blank-check companies as growing competition. (You can also hear this longer conversation here.)
TC: Brass tacks, how many people are now investing this $4.5 billion alongside you?
JK: We've got about 30 people full-time dedicated to Blackstone Growth, in addition to the obviously hundreds of, if not a thousand, people more generally available to us within the Blackstone family. We've got people now in San Francisco, New York and in London. It's has a global mandate.
TC: What size checks does your team tend to write?
JK: Our average investment might be $200 million to $400 million.
TC: And how much of this debut fund has been invested already?
JK: In the beginning, we were using other pools of capital before this pool of capital was available to us. Now that we've got this, we've got a handful of investments and invested a pretty significant portion of our capital already. It's probably north of 25% at this stage.
TC: Do you reserve upwards of half for follow-on funding? How does a fund of this size even work?
JK: Anytime we invest, we always expect and hope that we will continue to support our companies throughout. Fortunately, we never have a problem of running out of money. But we do reserve a significant portion of it to fund the ongoing growth of the companies.
The good news is many of our companies are already profitable. If you recall from we spoke last time, one of the things that we've tried to do is look for companies that are at the upper end of the growth equity spectrum, both in terms of some of the maturity of the business, and even their growth ambitions where they may have outgrown a lot of traditional growth equity, but they haven't yet outgrow Blackstone. As result, fortunately, we have the luxury of not needing to reserve as much because we think our companies are going to run out of capital. That's never really the problem.
TC: One of your most notable deals was in Bumble, into whose parent company you reportedly invested $2 billion at a $3 billion valuation for a controlling stake in late 2019. Given your other options, why did you decide to do this deal?
JK: First, we knew that dating is not a fad. People will date in bull markets and recessions and, we've learned in hindsight, in quarantine. Even before the pandemic, 40% of all new relationships that started began online. It's become much, much more mainstream on the back of mobile phone penetration, and it's a global phenomenon.
The second thing we really liked was the opportunity to back [founder and CEO] Whitney Wolfe Herd. She is an exceptional entrepreneur and partner and really embraced the full set of resources that Blackstone was in a position to help give. It's been just a phenomenal partnership.
TC: You've talked in the past about all the might that Blackstone brings to a deal. What did you do for Bumble?
JK: First was cementing Whitney's leadership of the overall company. Historically, there were two parts of the business: it was Badoo and Bumble, and they were largely run separately [and now] Whitney is the single CEO of both companies together.
The second thing we did was really augment the management team. We brought in 10 C-level executives alongside Whitney -- the majority of the Bumble team is female -- [and] we brought in six independent directors, [and now] eight of its 11 board members are women.
We also consolidated the product development teams between Badoo and Bumble, and the marketing teams. We meaningfully upgraded the technology infrastructure -- we put in a lot more around reporting and repeatability to make sure the company was going to be a great public entity. We consolidated their real estate footprint [as] they had multiple disparate units in London and Texas and elsewhere, and we centralized that to ensure the culture remained much more consistent. And we got the company ready to be public in terms of [Sarbanes-Oxley] compliance and prepping the company as to what to expect as a public business.
We also massively invested in product, one of which is video chat. Before the quarantine, we introduced video dating before any other platform, and that turned out to be a phenomenal boon for our growth across quarantine, where video usage was up 80% on the platform.
TC: Did your current investors in the fund benefit from Bumble's success?
JK: Yes they did.
TC: Special purpose acquisition companies (SPACs) weren't being used much in 2019 when you struck your deal with Bumble. Do you think if they had, Bumble might have skipped the Blackstone round and just gone public sooner? Do see SPACs as a threat to your work?
JK: I don't really view SPACs as competitors. It's easy to crap on SPACs but there is a role for them, it's no longer the dirty four-letter word it was years ago now that you see many more credible sponsors behind these SPACs.
I do think there will be many more SPACs than good deals to actually invest in, especially when the perverse incentive is: you've got 24 months to invest the money [so] it's better to do a bad deal than no deal at all. There is a fundamental misalignment in the current model of SPAC that has led to an arbitrage that we haven't seen in many, many, many years.
There's a place for them, but like direct listings that [prompted people to believe the] IPO model is going to go away, the practical reality is that there have been four or five total direct listings in history. So I don't see SPACs displacing IPOs, and I certainly don't see them displacing growth equity.