This article was originally published in the May/June issue of Middle Market Growth Magazine.
Networking is the lifeblood of private equity—if you’ve got connections, you work ’em.
That’s true for Washington, D.C.-based Enlightenment Capital, whose links to the State Department run deep. To date, the firm—now raising its second fund—has invested in eleven contractors that serve the defense industry.
Co-founder Devin Talbott, the son of former Secretary of State Strobe Talbott, grew up surrounded by government insiders. He started his career at Lazard and later became a vice president at D.E. Shaw, investing in midsize government contractors. Before raising his own fund, Talbott worked for The Cohen Group, a merchant bank run by former Defense Secretary William Cohen.
Enlightenment’s board is stacked with former Defense Department heavyweights, including retired U.S. Marine Corps Gen. James Cartwright and Kenneth Krieg, a former under secretary of defense for acquisition, technology and logistics. The firm relies on this influential bench to evaluate would-be investments.
“We have folks who help us understand where budgets are going, and policy changes and trends affecting the kind of businesses we’re looking at,” says Talbott, a member of ACG National Capital. “Oftentimes they know the companies by reputation and they can help us understand the people, the businesses. They can help us do the assessment around the risk and merits.”
Talbott says Enlightenment typically takes a $5 million to $20 million minority stake in technology or services companies through a mix of debt and equity. A planned exit would likely be a sale to a more traditional private equity firm, he says.
Talbott’s co-founder, Pierre Chao, is a former top-rated Wall Street aerospace and defense analyst for Smith Barney, Morgan Stanley and Credit Suisse. Prior to teaming with Talbott, he ran an aerospace strategy firm.
Talbott says Chao helped investors “get inside companies, understand the business, understand the contracts, understand how products or services aligned with (government) budgets.”
Founded in 2012, Enlightenment raised $80 million for its first fund, which closed in 2014. Talbott declines to discuss specifics of the second fund, but PE Hub, citing a source and an SEC filing, reported the fundraising target was $125 million.
Enlightenment’s portfolio includes REI, a provider of logistics services for time-sensitive products, and Vistronix, a data security firm. The firm’s most recent investment is in Aurora Flight Sciences, one of the largest private manufacturers of commercial drones.
“The majority of our investments are (with) owner-entrepreneurs. These are founders who have built a business over 20-some years,” Talbott says. “They’ve bootstrapped and we’re often the first thirdparty investor that’s helping them get over the hump, helping them professionalize, helping them augment their business.”