Battery Ventures' Consona Tenure: Everybody Wins?

Battery Venture's investment in Consona Corporation was one of the last decade's best returns on investment (ROIs) by any private equity firm investing in enterprise software. And there has been a vehement denial of any presumed trade-off between Consona’s research and development (R&D) investment and making money. TEC principal analyst P.J. Jakovljevic takes a look at how this deal might’ve been a winning proposition for all parties.

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In my recent commentary on the merger of CDC Software and Consona Corporation under Vista Equity Partners and under the Aptean name, I was apparently mistaken in nonchalantly speculating that Battery Ventures may not have even broken even on the Consona deal. I have since been set straight by some ex-Consona executives as well as by some private equity (PE) industry insiders and market experts.  

Reportedly, while financial figures cannot be disclosed, Battery's investment in Consona was one of the last decade's best returns on investment (ROIs) by any PE firm that has invested in enterprise software, or anything else for that matter. Moreover, there was a vehement denial of any presumed trade-off between Consona’s research and development (R&D) investment and making money. The PE industry insiders strongly feel that this sort of trade-off can work in the software industry only over the very short term.

PE Industry's Case

Instead, what Battery made on this holding software company is based upon selling the sum of 12 companies for more than it bought them for (in this case, a lot more; in fact, multiple times more). Battery owned Made2Manage ERP for nine years (since 2003). If the vendor had ignored R&D, then how could the product be selling more in the marketplace today than when Battery bought it, and why would Vista pay more for it than Battery had?

According to the aforementioned sources, the secret sauce is simple: the firm ran Consona better. Not all management teams are equal, and it can be easy, in software, to waste R&D dollars on products that no customer cares about. When PE firms are successful, like Battery was on this investment, all they’re really doing is installing better management, which ends up improving the value of the company. The only way you can improve the value of a company is to improve the value to the market of the products and services that it sells, and run it more efficiently, so that it makes more money.

The PE industry insiders acknowledge that many PE firms are not currently making a great return on their software investments. Not everyone can do what Battery did. In fact, Battery’s approach runs against the grain of other PE firms doing software deals. But, make no mistake about it, there is a strong belief that the Consona stint was good for everyone—customers, employees, and investors.

Any PE firm’s success is based in simple economics. If you buy a house and don't take care of it, even in a good real estate market you will probably not get a good return on your investment. But if you make improvements you might get a good return, even in a bad real estate market. Companies are no different.

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