Los Angeles-based CrossCut Ventures announced a $75 million Fund III
Micro VC funds are continuing to thrive outside of Silicon Valley. NextView Ventures in Boston, Silverton Ventures in Austin, Lehrer Hippeau Ventures and ENIAC Ventures in New York, and Metaphoric Ventures in New York and LA. All have either had superstar portfolio companies or new funds in the last year.
But there is another player in that space. Today, Los Angeles-based CrossCut Ventures announced a $75 million Fund III to continue to back early stage companies in Southern California.
Founded in 2008, the firm has built a rather impressive track record in a short period of time, already, it has made a name for itself in terms of getting large returns out of small funds, as well as being a champion for early stage LA companies.
When CrossCut first arrived on the venture scene in LA, managing partner Brian Garrett says that none of the other firms “were focused on the particular DNA of that ecosystem.” There was no fund that was branded for the right companies that LA was producing, which was ad tech, e-commerce, and gaming,” he says.
“There weren’t many local funds doing things with local companies,” Garrett says. “There were local firms doing deals all over the place.”
Focusing on a small fund, with the logic that it could make more off of the carry from its deals, ended up being a fortuitous decision for CrossCut right as the financial crisis hit. “It was a horrible time to raise capital,” Garrett says, “but I think the thesis and timing of having that capital was pretty good because the market imploded right after we raised the fund, and the angels kinda went away. So we were the only one’s writing checks at the time.”
As Michael Carney highlighted in Pando last year, CrossCut’s $5.1 million CrossCut I Fund reportedly will get a 4.5X (or more) return for its investors. Among the companies that it backed as part of that fund include early deals on companies that have already brought the firm returns, like Shoedazzle, and the company that acquired it, JustFab.
CrossCut’s second fund was $16 million and has the potential to see similar success as the first fund. And, it expected its third fund to be a $50 million fund. However, there was more interest than anticipated, which led to it closing a $75 million CrossCut III, which included two notable investors, The John Irvine Foundation and Top Tier Capital.
So how did a firm that only planned on raising $50 million, maybe $60 million, end up with such a large fund compared to CrossCut Fund II?
“The LPs that came into our new fund really appreciated our ability to get exits and to get good multiples on the dollars we put to work,” Garrett says.
Garrett said that the firm is now “finally” properly capitalized help LA startups the right way. Garrett also said that up to now, CrossCut has been operating almost with “one arm behind its back,” and now they feel unencumbered to go out and bring leadership to the community, to write the proper size checks, and to bring other VC firms from across the country in on deals that could help the LA tech ecosystem.
“In Silicon Valley, and even New York, there are a ton of funds that look like CrossCut,” Garrett says. “And in LA, we are now, I think, the largest [of the micro-VCs], we have the most history within that geography, and we have 50 companies within our portfolio.”
“We think we have a tremendous opportunity build a brand in an emerging market that we feel is underserved by professional capital,” Garrett adds.
Thinking of LA as an emerging tech market might be a stretch when the term is most often associated with places like South Africa and Brazil. However, in terms of venture capital, LA is the Wild West compared to refined San Francisco.
So it’s good to see a micro VC firm like CrossCut with a chip on its shoulder and a lot more money in its coffers.
While the LPs hope they can hitch themselves to what appears to be a shooting star in CrossCut, it’s the startups in Los Angeles that will most benefit from Fund III.