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Today, Revolution announced the close of its second Rise of the Rest Seed Fund, amounting to $150 million.
The inaugural fund of the same amount closed in late 2017, and has backed close to 130 companies in nearly 70 cities across 32 states plus D.C. and Puerto Rico. (To read a feature I wrote on Revolution/Rise of the Rest earlier this year, head here.)
I hopped on the phone with Revolution co-founder Case to find out more details and he told me that the plan was not necessarily to launch the second fund so soon after the first, but that the opportunities were just too plentiful.
About 60 percent of the capital in that first fund has been deployed, he said, with roughly 50 percent going toward initial investments. The remaining 40 percent will be used for continued follow-on investing in about 20 percent of its portfolio companies.
“This way, we’re able to double down on the larger checks on the most promising companies,” he told Crunchbase News.
Examples of two companies Rise of the Rest has followed up on so far are Chatanooga, Tenn.-based FreightWaves, which provides data for freight markets, and Raleigh, N.C.-based Pryon, which was founded by Igor Jablokov, the man responsible for the technology behind Alexa (which was bought by Amazon in that company’s first AI acquisition).
Many of the startups backed out of that first fund have grown faster than predicted, Case said, with nearly a dozen companies raising money at valuations above $100M, including Detroit-based StockX, an online sneaker marketplace that has raised a total of $160 million since it was founded in 2015.
All but two companies in the first fund’s portfolio were based outside of New York City, Silicon Valley and Boston, according to Revolution Managing Partner David Hall, who will lead investing out of the new fund (J.D. Vance led investing out of Fund I and is now working to transition that fund, according to a source familiar with the firm). Those companies are Cambridge-based CareAcademy (a Google Demo Day winner that was part of the firm’s pitch program) and Oakland-based Back to the Roots.
The new, second fund will focus strictly on new investments, he added, with about half going toward initial funding and the other half going toward follow-on financings.
LPs include returning investors such as Jeff Bezos, Spanx founder Sara Blakely, the Koch family, and Meg Whitman (among many others) as well as new investors such as James Murdoch, Kevin Plank, and Intuit’s Brad Smith (a more comprehensive list of Rise of the Rest Seed Fund investors can be found here). Partners Anna Mason and Mary Grove will continue to invest.
“Our average initial investment is around $500,000, but our strategy is to then carefully track companies in our portfolio so we can double down on those that show the most promise. Part of the reason we are raising this second fund earlier than anticipated is because there were so many companies that scaled and warranted follow on investment,” Hall told Crunchbase News.
Rise of the Rest does not typically lead investments, nor does it take board seats. It makes a point to invest alongside regional VCs. But it may increase its initial check size in its second fund, according to Case, based on how things went with the inaugural fund. A number of companies in that portfolio were investments made by Case on his own before formally forming Rise of the Rest Seed Fund. Those check sizes were smaller, closer to $100,000, and were folded into the fund.
Case said it was “too early” to share details of returns on the first fund but said “the results to date have exceeded our most optimistic expectations.”
“It will take a number of years to see it all play out. But we have made initial investments at a faster pace than we originally anticipated,” he told Crunchbase News. “We were once a lonely voice in the venture world in touting this regional investment opportunity and believe our results are a signal to investors on the coasts that there are opportunities to build valuable companies outside of those coasts.”
Earlier this year, the firm completed its eighth Rise of the Rest bus tour, visiting Orlando, the Florida Space Coast, Tampa Bay, Miami, and Puerto Rico. In total, the Revolution team has now visited 43 cities and logged more than 11,000 miles touring startup ecosystems. A ninth tour will be announced in early 2020.
Blog Roll Illustration: Li-Anne Dias