Proof raises $135m for opportunistic strategy

After a strenuous fundraising effort, the pro rata rights investor managed to raise more than it did for its previous fund.

Proof VC has closed on $135 million for its third opportunity fund, co-founder and managing partner John Backus told Venture Capital Journal in an email.

The Reston, Virginia-based firm expects to update its regulatory paperwork soon from an earlier SEC filing that showed Fund III had closed on $124 million from 185 investors.

“The difference is a few last minute closers and the GP commit,” Backus wrote in an email.

Proof began fundraising for Proof Fund III in November 2021 and held a first close on $82 million in February 2022. LPs include Blackstone Strategic Partners, which has backed all three of Proof’s opportunity funds, and another large institutional investment platform, the firm said.

John Backus, Proof VC

Backus said he was happy that Fund III would exceed Proof’s $120 million Fund II in spite of a challenging fundraising market, Venture Capital Journal reported last month.

Proof initially targeted a substantially larger fund than Fund III ended up being, but that was before a retreat in public markets pushed start-up valuations lower and put the kibosh on exits and a series of interest rate hikes made limited partners take a more cautious stance toward private markets.

In November 2021, “the market was screaming,” Andy Hayes, Proof’s partner for fundraising and investor relations, said in an earlier interview. “We had a couple of large investors that were geared up last year and put the brakes on adding [further commitments].”

Proof didn’t want to extend the fundraising timeline beyond 18 months, Hayes added.

Proof, whose name is an acronym for Pro Rata Opportunity Fund, partners with seed and other early-stage venture funds to maximize the growth of their best-performing companies. It does so by using the smaller funds’ pro rata, or anti-dilution, rights. By investing in only the strongest companies of smaller VCs, Proof achieved a net IRR of 30 percent and a 0.97x DPI on its first fund, raised in 2016, the firm said.

Proof’s strategy eliminates the need to figure out where any single industry is headed and what to invest in because the hundreds of smaller funds whose pro rata rights Proof is considering using are already doing that, said Backus. He cites the larger number of up rounds than down rounds for Proof’s portfolio companies last year – one of the toughest for the venture industry – as evidence of the strategy’s validity.

The top of this article has been updated to reflect a revised final close amount for Fund III.