Three years after forming a fund to invest in companies needing growth capital, Charter Capital Partners LLC has begun preparing to start a larger, successor fund.With investments in nine companies over three years and a robust pipeline of prospects, the deal flow indicates continued demand for a second fund that targets investments in a segment of the market that’s below where many larger mezzanine lenders participate.“We feel our initial thesis when we contemplated fund one has confirmed or validated that there is need for this — we’ll call it junior capital — at the lower end of the middle market,” said John Kerschen, president and managing partner at Charter Capital Partners. “That means we’re going to start thinking about fund two. We believe there continues to be market demand for this kind of capital.”Founded in 2019, Charter Growth Capital Fund invests $1 million to $5 million through loans or non-controlling equity investments, or a combination of the two, in fast-growing, profitable companies in the lower end of the middle market. The fund targets growing companies with annual revenues of $10 million to $50 million in the Great Lakes region: Michigan, Ohio, Indiana, Illinois, Wisconsin and Minnesota.The mezzanine capital helps fill the gap between the amount of capital a business needs and what it can secure from a senior lender through a conventional commercial loan.Five of the nine investments were syndicated deals completed with another capital investor, Kerschen said. The other four involved capital from the business owner.When making an equity investment, Charter Growth Capital obtains a minority stake in the company.“We want to be a meaningful part of that capital structure, but not necessarily control,” Kerschen said. “The entrepreneur maintains control, or our syndicate partners are the control investor and we’re supplemental.”The company does not have a specific dollar target to raise for the second mezzanine fund, although Kerschen expects it “to be a significantly larger fund than fund one.”In preparing for a second fund, Charter Capital Partners intends to approach institutional investors, family offices, banks and high net worth individuals to invest, Kerschen said.Read More