WALTHAM, Mass. – Named after the region of Spain where the first venture capitalist, Christopher Columbus, received funding for his historic voyage, Castile Ventures also considers itself somewhat of an explorer.
While the seed- and early-stage data networking market is certainly not uncharted territory, Castile is targeting – with a $50 million maiden vehicle wrapped in early May – an investment stage that has been left behind by many venture capitalists. In the wake of the unprecedented fund raising years of the past decade and the rapid influx of investment banks to venture capital investing, the industry’s average deal size has shot upwards of $5 million, leaving many start-ups that require a few million dollars of seed money with just two options: Either grow fast, or grow without VC help.
“The size of funds is growing, and they’re being raised more often than ever before, but the amount of time to identify [good deals] has not changed,” said Nina Saberi, a founder and general partner of the firm, which was launched in October 1998 and held a $25 million initial close in February. As a result, venture capitalists are putting larger parcels of cash into each deal, making it more difficult to make seed-stage investments.
“We thought that having a smaller fund would be complementary to larger funds,” Ms. Saberi explained.
The firm will invest an average of $3.5 million in about 16 data networking, Web-enabled businesses, telecommunications and Internet companies, primarily on the East Coast. Ms. Saberi, along with her partner and co-founder Maria Lewis Kussmaul, will invest as early as the incubation stage, help build entrepreneurial teams and cultivate their portfolio companies until they are ready to receive money from bigger VC firms.
Fund raising was not difficult for the first-time fund because of Castile’s close ties to John Mumford of Crosspoint Venture Partners and Cliff Higgerson of Communications Ventures, who sit on the new firm’s advisory board and introduced Castile to some of its limited partners. Crosspoint and Communications Ventures each invested $1 million in Castile and will share East Coast deal flow with the firm and occasionally co-invest.
“We see [our investment in Castile] as an extension of our visibility and reach, as well as supporting two talented industry veterans,” Mr. Mumford said. “Having a local presence can be very important.”
Brinson Partners, Forstmann-Leff International, New York Life Insurance, the Crossroads Group, St. Paul Venture Capital Inc. and Tredegar Industries, as well as a number of local leading venture executives, round out Castile’s L.P. roster. Kate Todd of Brinson, Celia Chapman of Forstmann-Leff and Phillip Smith of New York Life join Messrs. Mumford and Higgerson on the firm’s advisory board.
Ms. Saberi, the former president and chief executive of Internet working products developer Netlink, joined her company’s venture backer, Boston-based OneLiberty Ventures, two years ago (VCJ, October 1997, page 36). Ms. Lewis Kussmaul helped found Cowen & Co.’s national research and investment banking franchise in telecommunications, data networking and the Internet before co-founding Castile.