HCAP Partners is a diversely owned private equity firm specializing in providing mezzanine debt and private equity for underserved and lower middle market companies. Pulse 2.0 interviewed HCAP Partners managing partner Tim Bubnack to learn more about the firm.
Tim Bubnack’s Background
What is Tim Bubnack’s background? Bubnack said:
“I spent the first half of my career in commercial banking both in the underserved lower middle market for First Interstate and Imperial Bank as well as in the emerging growth marketplace serving venture-backed technology and life sciences companies. At Imperial Bank, I joined a small group called Imperial Ventures to make direct equity investments into early-stage companies as well as investments into venture funds. Following Comerica Bank’s acquisition of Imperial Bank, I spent five years with Silicon Valley Bank in various senior management roles before joining Huntington Capital in 2007.”
Formation Of HCAP
How did the idea for the firm come together? Bubnack shared:
“Huntington Capital was founded in 2001 to provide capital to small and underserved companies primarily located in San Diego and Southern California. The founders were both third-generation San Diegans with a passion for making contributions to the San Diego community by providing small business loans to a diverse group of growth-oriented businesses. We renamed the firm HCAP Partners in 2014. The majority of capital raised into the first fund came from the founders. I joined the firm in 2007 to assist the founders in raising our second fund, HCAP II, which marked our first institutionally-backed limited partnership. Initially serving as a junior partner, I transitioned to managing partner in 2013 with the launch of our third fund. Since then, I’ve been an integral part of the investment committees across HCAP’s last four funds. I’ve played a pivotal role in assembling an outstanding team, establishing the HCAP investment platform as an institution, and collaborating with my partners to enhance the firm’s reputation across the U.S.”
Favorite Memory
What has been your favorite memory working for the firm so far? Bubnack reflected:
“I have too many favorite memories to count. One that stands out is the exhilarating moment when we received the first call from a major institutional investor informing us of their significant anchor commitment to HCAP II. Another cherished memory is the day my colleague Hope Mago became a partner in our firm. Hope began as an intern with us right out of graduate school in 2008. The excitement and gratitude I feel from supporting and witnessing my teammates’ successes in their careers has created some of my most treasured memories.”
Core Services
What are the company’s core services? Bubnack explained:
“HCAP specializes in offering mezzanine debt and structured equity solutions to underserved, high growth, small-to-medium sized companies throughout the United States with a focus on California and the Western U.S. Job quality is both the core focus of how we create positive impact and an essential way that we work with our portfolio companies to support value creation and drive economic returns. We believe that empowering employees is crucial to business resilience and performance. We are committed to improving job quality within our portfolio companies by focusing on enhancing economic opportunities, promoting health and wellness, and advancing diversity, equity, and inclusion. Developed through collaboration with our LPs and industry thought leaders, our Gainful Jobs Approach™️ is our operational impact framework for understanding and improving job quality standards at our portfolio companies. We focus on building quality jobs for small businesses to foster operational excellence and achieve business success. This work is done alongside deeply committed management teams who understand and value the benefits of investing in their employees to strengthen their businesses.”
Significant Milestones
What have been some of the company’s most significant milestones? Bubnack cited:
“We pride ourselves on being recognized in Impact -Assets Top 50 list for 11 years running. As a mission-driven fund manager, we are setting standards by consistently raising institutionally-backed debt and equity funds – to create positive social impact in our portfolio across sectors and industry. Another notable achievement is our successful designation as an approved Small Business Investment Company (SBIC) manager for both Fund IV and Fund V. Operating as a U.S. Small Business Administration SBIC, our fifth fund was oversubscribed with total commitments of $353 million.”
“We recently celebrated a significant milestone. In April 2024, we unveiled our Annual Impact Report titled ‘Advancing Health, Well-Being, & Quality Jobs’. The report highlights our unique approach to working with our portfolio companies and summarizes the positive impact we seek to achieve through our capital and our approach to value creation.. Our strategy involves investing in healthcare and technology companies that specialize in providing products or services aimed at expanding access to care, enhancing its quality, and reducing associated costs. By offering support to our portfolio companies, the individuals they employ, and the communities they serve, we are dedicated to delivering solutions that address the diverse array of challenges present in the U.S. healthcare landscape.”
Challenges Faced
What challenges have Bubnack and the team faced in building the firm? Bubnack acknowledged:
“Challenge is a constant theme for impact investors such as HCAP who invest in small, growth-oriented businesses. Overcoming these challenges and managing risk while creating value in our portfolio companies is central to our work.In earlier funds, it was sometimes a challenge to demonstrate our dual value proposition and showcase that it is possible to achieve both attractive financial returns and meaningful social impact for underserved workers and businesses. HCAP has been a leader in field-building long before the term ‘impact investing’ was widely recognized – around the same time we became a founding member of The Global Impact Investing Network (GIIN) and Impact Capital Managers.
Many industry associations have published research and case studies showcasing our investments and strategy. This body of work has been pivotal in challenging the misconception that impact investments necessitate financial concessions. As a smaller firm, our growth has required us to scale our systems and processes to work more efficiently. Like many of our portfolio companies, we’ve learned that past approaches don’t always guarantee future success. Our ongoing learning, informed by lessons from both past and present investments, continues to shape our investment strategies and our ability to provide meaningful support to our companies.
We often find that capital is only one part of the solution for our companies. The constant challenge and opportunity for HCAP in driving economic returns is to provide hands-on support and value-added services that help our companies formalize the necessary business functions that will allow them to grow and succeed in the long run. HCAP seeks to meet companies where they are and develops customized value creation plans that include a range of tailored assistance, such as building company boards and governance structures, formalizing HR processes through the Gainful Jobs Approach™️, developing go-to-market strategies, supporting additional capital raising, and recruiting new talent.”
Evolution Of HCAP’s Technology
How has the firm’s technology evolved since launching? Bubnack noted:
“We have upgraded our accounting systems and implemented new portfolio management and reporting tools. We’ve migrated our Microsoft software platform to the cloud and implemented a robust cloud-based CRM platform. We were also one of the first impact funds to take our impact measurement and reporting process online through the Gainful Jobs Approach™. We’ve partnered with UpMetrics an impact measurement platform to automate and streamline collection and analysis of job quality and impact data, enabling us to spend more time engaging with our companies on the findings in the data to guide job quality improvements.”
Success Stories
When asking Bubnack about success stories, he highlighted:
“In 2024, HCAP partnered with Ellen G. Frank-Miller, PhD, founder, and CEO of the Workforce & Organizational Research Center (WORC) to pilot the Worthwhile Jobs Employee Survey and Index Score™. Our goals: to gather additional insights into job quality from workers’ perspectives during due diligence and inform post-investment activities with portfolio companies through our Gainful Jobs Approach™. The survey provided HCAP and portfolio companies with greater insights into workers’ perspectives and actionable guidance for improving job quality. Portfolio companies have found that the survey results help them prioritize high-impact opportunities and identify strengths they can lean into to achieve job quality improvements. Whether results validated a current strategy or flagged an area to keep an eye on, portfolio companies have been able to use the results to orient their job quality efforts for impact. Notably, the survey results we received in October 2024 showed that employees across all HCAP companies reported feeling overall positive about their jobs. In addition, across portfolio companies, employees consistently reported high levels of engagement, low turnover intention, meaningfulness of work, supervisor support, and task variety – demonstrating the positive impact felt by workers and reinforcing HCAP’s commitment to fostering quality jobs.”
Funding
When asking Bubnack about the firm’s fund metrics, he revealed:
“The team that is managing our firm today has managed $670 million of capital across four funds. Most of the capital we invest (70%+) is in the form of growth capital, which typically results in job creation at our portfolio companies, yielding significant impact. As of Q4 2023, our fourth fund, HCAP IV, LP, has invested in 17 companies, with 72% of the capital directed towards traditionally underserved businesses. Similarly, the fifth fund, HCAP V, LP, has invested in 12 companies to date, allocating 57% of the capital to underserved businesses.”
Total Addressable Market
What total addressable market (TAM) size is firm pursuing? Bubnack assessed:
“Our primary focus is on the Western U.S., which is home to 10 of the top 25 metropolitan statistical areas in the U.S. by population (U.S. Census Bureau 2019). The targeted states contribute 30.5% of U.S. GDP (Bureau of Economic Analysis Gross Domestic Product by State, 3rd Quarter 2020) and include California, which has the 5th largest GDP in the world if ranked among nation-states of the world. The targeted states are home to over 9.3 million small and medium-sized businesses (between 1 and 499 employees), which represents 31.8% of such businesses in the nation (U.S. SBA Small Business Profiles May 2020). Small businesses in the targeted states employ 16.8 million workers or 27.7% of the total number of small business employees in the U.S. (U.S. SBA Small Business Profiles May 2020).”
Differentiation From Other Firms
What differentiates HCAP from other firms? Bubnack emphasized:
“We primarily invest in the lower middle market, an area of the economy traditionally underserved by institutional capital. All our partners play an active role in field-wide initiatives to help shape the impact investing ecosystem and promote systems change and positive impact beyond direct work with companies. HCAP’s competitive advantages revolve around its distinct impact approach focused on quality jobs and unique investment strategy, which is attractive to many entrepreneurs.”
Future Goals
What are some of the company’s future goals? Bubnack concluded:
“Our vision is twofold: to foster the economic prosperity of local communities while striving to deliver above-market rate returns. We achieve this by prioritizing the enhancement of job quality for women, people of color, and low-to-moderate income (LMI) workers. With an unwavering commitment to making a meaningful impact on the lives of our portfolio companies and team members alike, we aim to create financial rewards for our stakeholders and tangible economic benefits for all employees within our portfolio. Our work is not just fulfilling. It’s also enjoyable and rewarding for everyone involved. We aim to establish ourselves as the leading provider of capital and quality job services in the underserved lower middle market of the U.S., guided by our Gainful Jobs Approach.”
