Velocity Gains Speed, Targets Northwest –

SEATTLE – Founded by third generation Seattle resident, David Alhadeff, Velocity Capital plans to fund the growth companies emerging from the Pacific Northwest’s burgeoning entrepreneurial community. The firm in mid-October closed on its $7 million freshman fund Velocity Capital Partners I LP, Alhadeff said.

Fund raising for the vehicle launched in the beginning of this year, he noted. The fund held an initial close in May. Alhadeff declined to reveal the size of the initial close.

“The Northwest is still in the early stages of its growth cycle, and there is an enormous concentration of talent here,” he said, adding “being well connected to the scene, I see a lot of opportunities all around me.”

Velocity Capital will focus on seed-stage companies. “We are targeting the capital gap’, that area of development after people have founded a company, but need a few hundred thousand to a few million dollars to get going,” he said, noting “big funds cannot get down to this level because it’s too small.”

The vehicle will invest in both technology and non-technology companies, Alhadeff said. “Our emphasis is on the best Seattle has to offer, and with Starbucks Corp., Costco Wholesale Corp. and Nordstrom Inc., there is a lot of retailing talent here,” he noted. Velocity will not do any health-care or bio-tech deals, he added.

The fund will invest in about 20 companies, with a typical deal size ranging between $100,000 to $500,000, Alhadeff said. The sweet spot for the vehicle’s investments will be about $250,000, he added. Velocity’s portfolio companies will all be within a 45 minute drive of Seattle. The fund has a 2.5% management fee and 20% carried interest structure. Alhadeff declined to say how much he had invested in the fund.

Limited partners in the vehicle include Whitney & Co., Matthew G. Norton & Co. and 65 high-net-worth individuals from the greater Seattle-area. Four investment professionals from other venture capital funds have also invested in the vehicle. Alhadeff declined to name what funds these individuals represented. “The [public] market conditions did not help the fund-raising process, especially in this neighborhood where a lot of wealth is tied up with technology stocks,” Alhadeff said, adding he was pleased the fund met its $7 million target.

Velocity has also entered into a relationship with VC powerhouse Sequoia Capital to identify and to evaluate potential deals in the Northwest, he said. “We will trade deals and work together, but it is hard to say exactly what will happen [with this relationship],” he noted.

Alhadeff, who is Velocity’s managing partner, will invest this fund by himself. Velocity will likely bring on additional investment professionals in the future for its second fund, he added. The fund has invested in four companies to date.