There’s a new venture fund in New York, but it’s not taking the same seed and Series A spray and pray path that’s saturated the market over the last few years. Alpha Venture Partners, which launched last month and is in the process of closing its first fund, will look to make growth stage bets (Series B and C) in established companies seeking scale. The company already wrote its first such check to Live Intent, an email advertising startup that raised a $10 million Series C in January.
Alpha has lined up 10 LPs to participate, each guaranteeing at least $5 million, some more than $10 million according to fund co-founder Steve Brotman. He wouldn’t disclose the current fundraising total, saying only “[it's] enough to get into a first close.”
Brotman, who co-founded Alpha with Brian Smiga, has 15 years of venture experience under his belt, holding positions at Greenhill SAVP, the Pritzker Group Venture Capital, and founding Silicon Alley Venture Partners. He’s invested in 30 companies, both pre- and post-dot com bust, and had two marquee exits: LivePerson and Medidata, both of which went public with the latter seeing 30 times return.
Brotman’s has quite a bit of experience with early stage tech companies, and a void he sees in the middle marked both contributed to the decision to branch out and start the new fund. “The structure of the industry is definitely aimed more toward early stage investments,” Brotman tells me. “There’s been a huge boom in seed and Series A investing,” but far fewer firms investing in Series Bs and Cs.
That’s because, he says, there’s a fetishizing for early stage investing, as well as a decline in the capital needs of young businesses. But Brotman has also seen a need for investors wanting to be part of something solid with the potential of an earlier exit.
“[Limited partners] don’t want to wait ten years for an exit,” he says, calling later stage rounds “undersubscribed.” Some in the Valley may disagree. There’s been a growing resurgence in growth-stage investing lately, driven in large part by the success of Yuri Milner, Chris Sacca, and others making late-stage bets on Facebook, Twitter, and the like. At the same time, Brotman’s mileage may vary and surely there’s need among less high-profile late-stage companies.
It may require more capital to obtain a meaningful stake in an established company but it’s also a safer bet. According to the Wall Street Journal three out of four startups fail. At the same time, statistics show that most companies falter at Series A and Series B, but once passed that it’s smooth sailing, relatively.
Alpha plans a passive investment strategy. Brotman and his partners will not serve on boards nor lead investments. “We are a co-investor in an opportunity that needs more capital,” he says
Brotman adds that this approach should appear advantageous to investors hoping to see sizable returns, but with a risk profile of backing proven companies and seeking scale. For some investors, that strategy could prove to be assuring. One real plus he sees is that these later-stage investments don’t require as much diligence as those in their early stages. To some investors this could seem less exhilarating than discovering the next Twitter at the seed stage but easier on the blood pressure.
Historically, of course, venture returns aren’t this cut and dried. No matter the stage of investment it’s never a sure bet.
[image via alphavp]