Industry Ventures, a pioneer in venture capital secondaries, has closed on $300 million for its third fund that will invest directly in start-ups.
Unlike traditional VC funds that must go out and fight for deals, Industry Ventures Direct III will only invest in companies the firm already has exposure to through its secondary and fund of funds strategies. “It’s liking fishing in a well-stocked pond,” Roland Reynolds, senior managing director, told Venture Capital Journal.
The San Francisco firm’s most recent secondaries fund ($850 million) acquires stakes in VC-backed companies through direct purchases and by buying LP portfolios, while its most recent fund of funds ($575 million) invests in emerging seed and early-stage managers.
It is currently invested in about 90 seed and early-stage managers, so it has a plethora of data on portfolio companies even before it begins due diligence on possible investments.
“What’s different about what we do is our go-to-market in sourcing the companies through our fund managers,” Reynolds said. “We’re not visionaries in technology and we’re not taking a 10-year view of trends that are underway, but we’re good at pattern recognition and collaborating with our managers.”
Industry has found no shortage of chances to put money to work. “We’re finding all sorts of good opportunities in these ‘tweener’ spaces, which is companies that want to raise a Series B, but given the change in the metrics required and the milestones, they are often raising a smaller interim financing in advance of the B,” Reynolds noted.
Like Direct II, which closed on $180 million in 2020, Industry’s third Direct fund will back about 50 to 60 companies, writing checks of $5 million to $10 million per company.
Industry kicked off the strategy in 2016 with a debut fund of $197 million. Both its first and second Direct fund “look very good on both IRR and TVPI,” Reynolds said. “We’ve had lots of good markups in Fund II.”
The firm did not disclose names of LPs in the new fund, but said investors include “leading institutions representing public and corporate pension funds, endowments, foundations, financial institutions and family offices, as well as a sizable commitment from its general partner.”
Investors in previous Industry funds include the Employees Retirement System of Rhode Island, Employees Retirement System of Texas, Montana Board of Investments, New Hampshire Retirement System, New Mexico Educational Retirement Board and Penn Mutual Life Insurance Company, according to PitchBook.
The new fund brings the firm’s total institutional committed capital under management to $5.5 billion.