High Alpha, an Indianapolis venture capital fund and startup “studio,” announced today that it has raised more than $100 million for two new funds called High Alpha Capital II and High Alpha Studio II.
High Alpha Capital backs companies the way traditional venture firms do, while High Alpha Studio takes it a few steps further by conceiving, investing in, launching, and growing new software-as-a-service startups.
To date, outside investors have put more than $55 million in follow-on funding into High Alpha Studio’s portfolio companies, including Zylo’s $9.3 million Series A round led by Bessemer Venture Partners and Sigstr’s $5 million Series A investment led by Hyde Park Venture Partners. Two of High Alpha Studio I’s companies, Octiv and ClearScholar, were also recently acquired by Conga and Civitas Learning, respectively.
Kristian Andersen, a founding partner at High Alpha, says the firm’s hybrid venture capital/startup incubator model is working.
“We’ve launched nine companies with another two in stealth, and we just want to do more,” Andersen says.
The firm raised $16.6 million for its studio’s second fund. The money comes from repeat investor Emergence Capital, based in the Bay Area, and Foundry Group, a new High Alpha investor located in Boulder, CO. Foundry Group partner Brad Feld, who is also a co-founder of the Techstars startup accelerator organization, will take a seat on High Alpha’s board as part of the deal (Emergence partner Gordon Ritter is already a member of the board.)
The firm raised $85 million for High Alpha Capital II, which is roughly four times the amount of money in the first fund. “We brought in half a dozen big institutional investors—university endowments, big family offices—rounded out with 50 terrific software and tech executives,” Andersen says.
Andersen says the firm’s model isn’t changing. However, the new capital infusion will allow “bigger bets, not necessarily more bets,” and more reserves to dedicate toward follow-on funding for its most successful startups.
Access to capital is not differentiating in today’s market, when there’s so much of it flying around, Andersen says. Just as important as the firm’s new money is the expanded network that forms when more investors are brought into the fold, he notes.
“In many cases, our companies’ models are predicated on their ability to get their foot in the door,” he adds. “We never underestimate the power of good, old customer discovery.”
Another differentiating quality? High Alpha is led by former startup founders, Andersen says. “When entrepreneurs work with us, the number one thing they’re interested in is that we’re all operators. They’re hungry for an operational perspective.”
Indianapolis doesn’t have the same reputation for churning out successful software companies as coastal tech hubs, but Andersen says that hasn’t deterred High Alpha. “We knew doing it in Indy would raise some eyebrows, but it’s been a big competitive advantage,” he says. “Launching cloud companies in Indianapolis has been a dream. I’m not sure there’s a better city to do it in.”
Others would disagree, but he’s right that Indianapolis has started to build a track record in cloud software, thanks to exits by companies like ExactTarget, a marketing software firm acquired by Salesforce for $2.5 billion in 2013. Three of High Alpha’s founders were ExactTarget executives.
High Alpha’s leaders had some initial concerns that they would exhaust their network too quickly, but Andersen says that has not been the case. “The city has continued to expand—more people are moving here to pursue these jobs,” he says. “Our timing was right. We can still hire competitively with much lower wages than on the coasts.”
Indianapolis, like some other Midwestern cities, seems to be on the upswing. Andersen says efforts like Steve Case’s Rise of the Rest tour have helped highlight the increasing tech opportunities in so-called flyover country.
“We didn’t expect that the rest of the world would be ready for it on our timeline,” Andersen continues. “But there’s a willingness, or even an eagerness, to do business outside of places like Silicon Valley and Boston. That wasn’t really the case five years ago, and it definitely wasn’t the case 10 years ago. The neat thing is that it’s not a zero-sum game. There are cool synergies being created in middle America.”
