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Upfront Ventures raises the bar on LA with a $280M fifth fund

By Michael Carney , written on December 16, 2014

From The News Desk

“The rich get richer.” “You need money to make money.” There are plenty of cliches to describe the phenomenon of wealth and resources aggregating at the top of the economic food chain. It’s true for people as often as it is companies. But what all these soundbites fail to convey is that often there’s a reason these groups are on top to begin with.

Upfront Ventures is a classic example. As Los Angeles’ largest and longest-standing venture capital firm, Upfront has earned its position atop this market. And today, it’s cashing in, announcing the close of its fifth and largest-ever fund at $280 million. The news comes a year after the firm rebranded as Upfront (formerly GRP) and refreshed its partnership with three out of six new faces in Greg Bettinelli, Kara Nortman, and Hamet Watt, and months after relocating from the banking mecca of Century City to startup ground zero in Santa Monica.

If it seems like Upfront just announced fund four, it’s because it did, sort of. The firm started raising the prior fund in 2011 completing a first close and beginning to deploy capital out of the vehicle in April of 2012. But due to a drawn out fundraising and closing process, the final $200 million fund four wasn’t announced until Summer 2013, along with the new branding.

The process for fund five was much different, taking just five months from beginning to end, according to Upfront Ventures Managing Partner Mark Suster. The firm set out to raise between $225 to $250 million but encountered demand for more than $400 million. With five investment partners and a venture partner (Watt), the decision was made to limit the fund to $50 million per full-time partner. The round consisted of more than half new LPs, according to Suster.

The goal with fund five is to complete approximately 30 early-stage investments over the next three years, while setting aside as much as 200 percent of ever dollar of initial investment for follow-on. That means the firm will target investing $10 to $12 million in its best deals over multiple rounds. Upfront will continue to target a rate of 50 percent Los Angeles-area deals and 50 percent elsewhere, while writing about 90 percent of its first checks into a Seed or Series A round. This latest fund should also return Upfront to the standard 36-month fundraising cycle, according to Suster.

The uptick in LP demand this time around can be trace back to two parallel trends. First, over the last three years, the Los Angeles early stage technology market has gone from a curiosity to a meaningful and still growing ecosystem. Second, Upfront has seen multiple significant exits in the last 12 months, including Maker Studios, TrueCar, Burstly, and Gravity, and has a number of apparent winners still in its portfolio. It also doesn’t hurt that the macro-climate for venture capital is as positive as it’s been in nearly a decade – how long that will last is another question, however.

As far as investment thesis and market trends, Suster says Upfront will continue its focus on investing in “the most talented entrepreneurs going after the biggest ideas.” The firm has a history of success in ecommerce, SaaS, fin-tech, and retail innovation, with a more recent trend of backing mixed hardware and software ventures, Suster adds. Like everyone else in the market, Upfront is also seeing later stage rounds grow in size and seeing timetables compress between rounds as investors look to bet big on early traction. All of this increases the incentive to find the best deals as early as possible, something Upfront prides itself in doing as well as anyone.

Upfront may be the biggest VC firm in terms of dollars raised in LA, but that doesn’t mean it wins all the local deals. That includes misses on deals like Snapchat and Honest, both of which were led by Silicon Valley firms. Suster isn’t concerned.

“We’ll never win every deal, and some we even passed on,” he says. “But, if we can have more Honests, Snapchats, and Rubicons that we’re not in, that’s just the next generation of entrepreneurs that we can invest in three years from now. So it’s not something I feel bad about one bit.”

LA may be the third-largest tech market in the country, but the one consistent knock on the ecosystem has been that it lacks access to sufficient capital to support its growth. Thanks to Upfront and other large, tentpole funds like Greycroft (and newly March Capital) that's starting to change. It takes leaders to grow a market and Upfront continues to make the case that it's carrying that flag for LA.

[Image via SantaMonicaMom]