Austin-based Escalate Capital Partners has announced a first close of its fourth and largest fund, Escalate Capital IV LP, in which it raised $282 million to provide loans to “venture and growth capital-backed companies.”
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The fund has a hard cap of $290 million. Limited partners include JP Morgan Asset Management, The University of Texas/Texas A&M Investment Management Company, Bespoke Private Strategies, Cadence Bank, and Regions Bank, among others.
I hopped on the phone with Tony Schell, managing director and a founder of the firm, this afternoon. He told me that the fund is part of a complementary strategy, and Escalate Capital will also be increasing the pace of its equity investing to about 10 percent.
The firm will look to make $1 million to $2 million equity investments in existing fund portfolio companies to finance their growth. Schell emphasized there is no “shift” in strategy and that providing loans will continue to be the firm’s main focus.
“Our core strategy is to invest via a debt security or loan and then based on subsequent performance by the company, and if they ultimately need equity capital, we may seek to invest equity capital into the company,” Schell told me. “We think of it is a credit opportunity and equity investment firm.”
In July, for example, it put equity into NY-based NewsCred, a content marketing platform for marketers that provides access to licensed content from various publishers.
While loans as an alternative form of financing is a model we’re seeing more of these days, it’s nothing new for Escalate Capital, which was formed in 2005 and has closed on new funds about every five years. It closed on its first fund of $193 million in May 2005 and its second fund of about $151 million in July 2010. Escalate then closed on its third fund of $235 million in September of 2014.
“We recycle capital over our five-year investment periods,” Schell told Crunchbase News. “We’re trying to maximize each dollar.”
In announcing the new fund, Escalate also announced the hiring of Travis Wood, a director who formerly worked at Silicon Valley Bank. Brendan Scher also joined as an associate, and Escalate also promoted Chris Hall to principal.
Since it was founded in 2005, Escalate Capital Partners has invested in over 100 companies including HomeAway, RetailMeNot, RigNet, and SailPoint. Despite being based in Austin the majority of the firm’s money has gone to companies outside of Texas, according to Schell.
“We’d certainly like to invest more here,” he said.
The private debt fund looks to back companies where it’s “not the first institutional money.”
“We also look for companies that are growing rapidly and where the market opportunity is large,” he said. “We shy away from hardware oriented companies or situations with gross margins that are less than 50 percent.”
In particular, Escalate focuses on investing in high growth later-stage tech companies including SaaS, tech-enabled services, internet, and healthcare. It has over $800 million in cumulative capital commitments, according to its website.
Illustration: Li-Anne Dias