Austin’s Next Coast Ventures Closes On $130M Fund II

Texas startups are increasingly getting more access to early-stage capital. The latest example lies in Austin-based Next Coast Ventures’ announcement this morning of the close of its second fund (dubbed “NCV II”), which topped out at $130 million.

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The early-stage VC firm joins a growing list of venture shops that have recently either launched, or closed on, new funds in Austin. In April,  LiveOak Ventures announced the close of its $105 million second fund. (Read more about the others here, here, here and here.) In fact, Next Coast’s closure marks at least the sixth known nine-digit venture fund that has been announced in Austin since the start of 2019.

I talked with co-founder and managing director Mike Smerklo to hear more details about Next Coast’s latest fund. But first, by way of background, the firm was founded in 2015 and has since participated in about 32 investments, leading at least 10 of them, according to Crunchbase data. It closed its first fund in early 2017, raising $85 million. While Smerklo moved to Austin from the Bay Area a few years ago, Next Coast’s other co-founder, Tom Ball, has been investing in the region for some time. He was once a general partner at the now-defunct Austin Ventures, which at one time was probably the most active venture firm in the Texas capital.

Strategy

The firm is focused on identifying, and providing capital to, “high-growth” startups in ‘Next Coast’ markets (hence its name). Seventy-percent of its current portfolio is based in its home city of Austin but it’s also backed companies based in locales such as Utah, Montana and Minneapolis. Next Coast also prides itself on being “built for entrepreneurs, by entrepreneurs.” Most recently, it tapped Zaz Floreani to serve as principal, Jonathan Kaplan as chief operating officer and Sarah Puil as entrepreneur-in-residence.

Exits include smart oven maker Brava this week being acquired by Middleby Corporation, “a publicly traded commercial and residential cooking and industrial process equipment company in Illinois,” for an undisclosed amount. Earlier this year, portfolio company Finery sold its IP to personal styling platform Stitch Fix, also for an undisclosed amount. And, Marcus by Goldman Sachs picked up Clarity Money in April of 2018 (also for an undisclosed amount).

Next Coast has also put money into EverlyWell, an Austin-based digital health startup, and software review platform TrustRadius, which actually got dollars from the second fund.

With the new fund, Smerklo expects the firm’s average check size will go up.

“In Fund 1, checks tended to be between $3 million and $5 million,” he told me. “But now we expect they will be more in the $5 million to $10 million range.”

Plus, the firm still has “ample reserves” in fund 1 for follow-on investing.

LPs include a “very high degree of return investors” from the first fund, according to Smerklo, as well as some new institutions. In general, LPs are a “good mix” of institutions, large family offices and high net worth individuals.

News of the new fund comes on the heels of a recent analysis by Crunchbase News that found Austin startups have raised $1.7 billion this year so far, already surpassing the $1.5 billion raised in all of 2018. It’s an exciting time to be a startup and venture capital reporter here in Austin. The city really seems to be coming into its own, and it’s been wild watching it happen.