Austin—AVX Partners, the small growth-stage venture firm that sprouted from Austin Ventures in 2015, has made its fourth investment: in Tasktop, a Vancouver, BC-based software maker.
Tasktop is getting $11.6 million in new funding in a round led by AVX, which contributed $8 million. Filling out the round were Austin Ventures and Vancouver-based Yaletown Partners, which jointly funded Tasktop’s $11 million Series A round.
AVX was founded in 2015 by Chris Pacitti, a general partner at Austin Ventures. Pacetti and a few others at Austin Ventures still manage investments that firm previously made, but it stopped making new deals in 2015 (though Austin Ventures does make follow-on investments). As an investment, Tasktop provides some insight into AVX’s investment philosophy and how it differs, in some respects, from that of other VCs.
With AVX, Pacitti says, he was looking to find capital efficient companies that already had customers and revenue, but still needed small rounds of funding to reach a scale that might attract a buyer. AVX usually invests about $5 million or less in companies that have used outsourcing, open source software, and cloud technologies to keep costs down, limiting the need for additional venture funding, Pacitti says.
“I want companies that are far along in their development, but relatively early in their cap table,” he says. “It looks like a Series D, but this is actually a Series B.”
With Tasktop, AVX is investing in a company that makes software that integrates new or emerging software development tools—such as Atlassian’s JIRA agile software development product—with older application management products. Tasktop, which has an office in Austin, is using the funds for marketing and sales. The company says it increased revenue 75 percent in 2016 versus 2015, and has 43 of the companies in the Fortune 100 list as clients.
Arguably, any VC might want to invest in a company with proven revenue, low operating costs, and little previous VC funding. But AVX finds such companies in a certain niche. Pacitti says that the businesses he’s targeting are typically in more technical business-to-business, software-as-a-service markets. Those don’t offer the “alpha” or higher-risk profile of typical venture portfolios, and the businesses aren’t looking for as much money as those firms might want to invest, he says. Plus, the businesses aren’t necessarily large enough yet for a Thoma Bravo or Oracle to buy. He hopes his funding will set them up for such an acquisition.
“It could appeal to the strategics, as well as the financially minded buyers,” Pacitti says.
AVX has raised separate small funds for each of its individual investments—a pledge model for a group of family offices that entrust capital to AVX. He plans to eventually raise a larger fund that he can invest from, which may happen in the next six to 12 months.
Other AVX investments include three Austin-based companies: Vyopta, which raised $5 million in February 2016 for its video conferencing service; Predictive Science, which also raised $5 million; and Vapor IO, which AVX funded along with Goldman Sachs.
Other investors have crafted similar strategies out of targeting growth-stage software companies. One example is San Antonio-based Scaleworks, started by former Rackspace president Lew Moorman and entrepreneur and investor Ed Byrne. Scaleworks, however, focuses on companies that need help with things like their market strategy, and it acquires the entire company. AVX still only acquires a small stake in its investments.
