Wavecrest co-founder says hybrid fundraising model here to stay

Boston-based software investor Wavecrest Growth Partners said fundraising during the pandemic has provided opportunities to find new LPs.

The growth-stage firm announced in July that it closed on $290 million for its second fund, which was $100 million more than its debut vehicle two years earlier. The firm began fundraising for its sophomore effort in February and officially wrapped up at the end of June. The entire fundraising process took place over Zoom.

Wavecrest co-founder and managing partner Vaibhav Nalwaya said that the pandemic initially limited its ability to meet with potential LPs due to travel restrictions. But after a few months, some new LPs, including those from Europe, embraced the opportunity to meet virtually.

“It’s great recognition on the part of the LP communities that [virtual fundraising] is going to become the norm,” Nalwaya told Venture Capital Journal. “Going forward, you’ll see LPs definitely use Zoom for a large part of their diligence. There’s probably going to be an initial meeting in person but a lot of the work is going to be done over Zoom.”

He said there would never be a substitute for in-person meetings with LPs, but a hybrid fundraising method could continue.

Nalwaya added that the fund was oversubscribed, pointing to a large demand from LPs for higher than average returns found in smaller firms, such as Wavecrest.

The firm wouldn’t disclose investors. But its LPs are a mix of institutions, including the New York State Common Retirement Fund, which committed $20 million, according to the pension’s latest allocation report.

In addition to meeting with LPs, Wavecrest also has perfected the art of a hybrid model when it comes to meeting and evaluating founders and management teams of potential investments. For example, one of the first investments the fund made during the height of the pandemic relied heavily on virtual meetings. While conducting due diligence, and once restrictions of gatherings eased, Nalwaya and his team met with the rest of the company in a large conference room.

“It was a huge room; everyone was sitting like 20 feet apart,” he said.

Nalwaya believes about 20-30 percent of their meetings will most likely be in person, with the remaining 60-70 percent all virtual.

Wavecrest’s current portfolio includes cloud payments platform Volante Technologies, retail market intelligence software Edited and customer relationship management provider Tier 1.

Wavecrest invests in business-to-business technology companies that sell to a specific industry, whether in real estate, the automotive market or finance. Its focus is on companies outside of Silicon Valley and invests in start-ups in North America and Western Europe. The firm works on a partnership model, in which they take a significant portion of equity alongside the founders.

Nalwaya said Wavecrest is interested in finding companies that sell to markets lacking technological sophistication and that can bring digitization to the space.