Spark Capital last month wrapped up fund-raising for its second fund, capping it at $360 million. The Boston-based venture firm, which invests in media, entertainment and tech companies, raised $260 million for its debut fund in 2005.
Editor-at-Large Dan Primack sat down with Spark General Partner Dennis Miller to ask him about the fund-raising, the exit environment and whether LPs expressed any concern about a portfolio company’s involvement in adult content.
Q: Spark is known as an early stage firm, and your website notes that “no idea is too green.” But this fund is larger than the last one, in part, to enable some later stage investing. Why diversify?A: I think that we are going to stick to our core knitting, which is early stage. But we’ve discovered along the way some select companies that are showing strong growth with meaningful revenue that we’re interested in. These are companies that are largely past the technology risk and into the execution risk. So we will be selective, but we want the ability to write some larger checks and own meaningful parts of these businesses.
Q: You closed your last fund just two years ago. Are you already out of dry powder, or was this fund-raising just a preemptive move for when you actually need capital later this year?A: We’re about two-thirds invested in our first fund, but I actually think you were responsible for us raising the second one so quickly. After our last annual LP meeting, you posted [on PEHub.com] that we were raising another fund, and we got lots of interest both from our GPs and some new folks.
Q: Even though the first fund is two years old, it already had an exit with thePlatform, a digital media delivery company that was bought by Comcast last summer. Was that exit a validation for LPs, or do most LPs commit to a second fund when they’ve committed to the first?A: The early exit did help validate the thesis, but I think it’s just one piece of the story. You need to combine that with some of the companies we’ve identified and entrepreneurs we’ve worked with—like Dimitri Shapiro of Veoh, Kimball Musk of Me.dium or Herb Scannell of Next New Networks. LPs got to meet a lot of them during the annual meeting. I think those meetings helped LPs gain more confidence about owning a substantial chunk of disruptive companies.
It’s also important that the partners bring a diverse set of networks and brainpower to the table, and that we get along.
Q: Do you feel Spark has a geographic advantage over the Silicon Valley firms that invest in the same space as you? Not only might there be less competition for local deals, but also because you’re able to escape the Bay Area groupthink?
A: In the New England area, there are a number of funds—General Catalyst, Highland, Polaris, Matrix—that are playing in or around our space, and we often run into them and partner with them. But it’s still a fairly small community.
Silicon Valley, on the other hand, is densely populated with VCs, and it tends to be fairly ethnocentric. There is a massive amount of Web 2.0 stuff and Facebook applications and things like that.
Q: Last year you led a deal for a wireless content distribution company called Twistbox, which, at least as of the time you invested, made most of its money via adult content. You mentioned to me that no LPs expressed any concern. Did that change at all during this round of funding, and how is the company doing today?
A: Nope, there were no concerns expressed during fund-raising. The company has done extremely well since then. It acquired two gaming companies—one in Germany and the InfoSpace games library—and just closed deals with Variety, NBC and a large overseas fashion television service. We were able to take advantage of it being that first mover in the adult space, but are now branching out into lots of other areas.