Scale Venture Partners announced today it has closed its sixth fund, gaining $400 million in new capital to invest in companies capable of transforming business operations through advanced technologies such as artificial intelligence and robotics.
Foster City, CA-based ScaleVP focuses on startups developing Web-based software sold as a subscription to businesses. The VC firm enjoyed a recent portfolio company exit when San Francisco-based digital signature software company DocuSign (NASDAQ: [[ticker:DOCU]]) reaped $629 million in an initial public offering in April, as Bloomberg reported. But ScaleVP has also branched out into hardware-based sectors such as automated manufacturing, with a May investment in Cambridge, MA-based Soft Robotics, which makes a rubbery gripping claw that can pick up spongy foods such as marshmallows.
Rather than investing in early-stage startups, ScaleVP steps in when a young company has built its initial product, attracted some customers, and validated the product’s fit with its target market, says Ariel Tseitlin, a partner at the VC firm. ScaleVP then helps the company make the transition from research and development to commercialization and growth—to “navigate from the first million (in revenue) to the 100th million,” he says.
“There are a lot of decisions along the way,” Tseitlin (pictured above) says.
Over time, ScaleVP has compiled insights and statistics about best practices for growing companies, and in recent years used them to create an internal platform to inform its guidance for portfolio companies. That includes assessment metrics that ScaleVP has devised. Some are loosely based on baseball team performance statistics like the Magic Number, a tally of the game outcomes needed for a team to qualify for the playoffs. ScaleVP’s version of the Magic Number—for investing—is a way of assessing the prospects for success of a software company with a subscription-based business model, through a formula comparing revenue with the amount spent on sales and marketing.
The VC firm has now decided to open up the use of its automated platform to companies outside its investment portfolio through a website in development, called Scale Studio. In a blog post published today, ScaleVP partner Stacey Bishop announced a preview of the site and invited companies to apply to participate in a beta version of the project.
Bishop says ScaleVP plans to open the website to any company by the end of the summer. Companies that identify themselves and accept the website’s terms will be able to enter some or all of their performance-related data, such as revenue, spending on sales and marketing, and customer retention figures. Scale Studio will automatically respond with an analysis comparing the company’s progress with that of other companies (names anonymized) that are at a similar stage of growth. The VC firm’s data analysis platform sets a number of benchmarks by which the health of a growing business can be evaluated.
Tseitlin says such guidance has helped ScaleVP’s portfolio companies make operational decisions, such as how to allocate the spending of their revenue among categories such as sales and marketing, and general and administrative expenses.
Partners at ScaleVP spend a lot of time researching trends and markets, and the firm is confident enough in its strategy to continue following it as it invests its sixth fund, Tseitlin says. The $400 million just raised is a bit higher than ScaleVP’s fifth fund, and some junior staff will be hired, but the team won’t grow dramatically, he says.
“We don’t see ourselves raising a $1 billion fund,” Tseitlin says.
ScaleVP will be looking for companies using the frontier technologies it expects to reshape the next generation of business software. The firm’s most recent investment was in Tel Aviv-based BigID, which helps businesses maintain the privacy of personal data they hold.
With the closing of the new fund, ScaleVP’s assets under management now total $1.8 billion. The VC firm will fund about 20 companies from its sixth fund, investing initial amounts between $5 million to $25 million, Tseitlin says. The average initial investment by the firm has been about $8 to $10 million, he says. As the portfolio companies grow, ScaleVP will pull from the sixth fund’s reserves to continue to back the companies in follow-on fundraising rounds, devoting about 50 percent to 60 percent of the amount it initially invested in each company. The goal is help portfolio companies get ready to tap the public market in five to seven years, Tseitlin says.
Photo courtesy of Scale Venture Partners
