On behalf of our team at NextView, I’m very pleased to announce that we have just closed our second fund. NextView Ventures II is $40M, twice the size of our first fund, and we continue to be exclusively focused on seed-stage companies pursuing internet-enabled innovation.
As former operators and product-oriented entrepreneurs, Dave, Lee, and I tend to think of our firm as a startup company and our approach to investing as our product. We’ve often explained to entrepreneurs that the second fund of a venture firm is very much like the series A for an early stage company. It shows that things are working and there is product/market fit, but there is a long way to go towards building an enduring company of great consequence.
For a seed stage venture capital firm, product/market fit comes down to two questions.
1) How is the portfolio performing?
2) Is your reputation in the market such that great people will want to work with you?
On performance, we are happy with how things are shaping up in our early NextView I portfolio. We have had a number of companies that have achieved successful liquidity events, including Rentjuice (acq. Zillow), Hyperpublic (acq. Groupon), and TapCommerce (acq. Twitter). As a result, we have been able to return a nice chunk of the first fund, with many of our most promising portfolio companies still in play and progressing rapidly. We have also been able to maintain a 70%+ hit rate of our seed companies raising series A’s, even in the depths of the “Series A Crunch”. The full story of the fund’s performance is still being written, but we are optimistic about what lies ahead.
On #2, we have been fortunate to collaborate with a wide group of exceptional entrepreneurs, coinvestors, and limited partners. Prospective LPs evaluating NextView tend to focus their due diligence on conversations with these folks as well as other trusted participants in the startup community that are likely to have a POV on us. Thankfully, that POV has been positive, and allowed us to bring on 4 new institutional limited partners in addition to our existing LP’s, several of whom significantly increased their commitment to NextView II. For those of you who spent time chatting with prospective LPs to build enthusiasm for our team and firm (you know who you are) we are grateful for your support and partnership over the years.
Just like any other startup, the question we are focused on post series A is whether we are doing the right things to allow us to win in a competitive market with a power-law outcome distribution. Does our strategy still resonate? Are we skating to where the puck is going? Are we hungry to keep innovating and investing internally to build on our early product-market fit?
Some of these questions led us to raise a larger fund for NextView II. We are still very small in the scope of venture capital firms, and we think that allows us to have a favorable balance of fund size to potential ownership in our portfolio companies. But a larger fund also allows us to invest a broader range of amounts in early seed rounds. There are a couple reasons for this.
First, the seed and early stage market continues to evolve. When we started NextView, it was fairly heroic to raise a $1M seed round, so a $20M fund could comfortably catalyze rounds with a relatively modest $250-$300K investment. Today, seed rounds are increasingly larger, sometimes creeping up to $2M. We want to be able to comfortably lead these rounds and speak for 1/3 – 1/2 of the capital or more. Our new fund size allows us to do that and continue to play the part of the lead investor.
This leads to the second factor. Although there are an increasing number of early stage capital sources, there remains a dearth of seed investors that are comfortable leading rounds. Our finding is that even rounds that end up largely oversubscribed often waste weeks trying to find a lead while other investors “hang around the hoop”. Part of our DNA was coming from larger funds that lead nearly all of their investments, and so we wanted to bring that behavior to seed investing. To date, we have led roughly 2/3 of the seed rounds we’ve been a part of, and even if our name isn’t the lead on the top of the term sheet, we act like a lead and drive to fast, independent decisions rather than hang back to see how syndicates take shape.
In most ways however, Fund II is a carbon copy of fund I. Same investing team (plus our new Director of Platform), same areas of focus, and same commitment to being exclusively seed stage investors. As I like to say, we are a one-product company, and that product is a highly engaged, lead seed investment. And just like any company, raising capital is not a metric of success, but merely a further opportunity to accomplish our mission.
Towards that end, we have already begun investing NextView II since the beginning of this year, and have 6 new companies in the portfolio so far. Stay tuned for more announcements in the months ahead! Follow our NextView blog here or the different members of our team. We’re excited with how things have been going, but there’s a lot of hard work ahead.