TCV Raises $3B Tech Fund

TCV announced today it has closed on TCV X, a new $3 billion fund that will focus on tech investments in consumer internet, software, and IT infra companies. The fund marks TCV’s largest yet.

I hopped on the phone with Nathan Sanders, COO and general partner at TCV, to understand more about what this means. First, he emphasized that future TCV investments will not be exclusive to the above, and will instead land “across the entire tech landscape.”

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He also told me that Menlo Park-based TCV plans to start investing out of the new fund this quarter, and overall, it’s looking to make “somewhere between 20 and 25 investments” out of the fund. Doing that math, that’s an average aggregate investment of $120 million to $150 million. It’s important to note that while the “vast majority” of TCV’s portfolio companies are private, the firm also invests in public companies.

And it’s not just looking at Silicon Valley.

Historically, three-quarters of TCV’s investments have been made out of Silicon Valley (in terms of the number of companies invested in, not dollars deployed) since its inception in 1995, according to the firm. And it’s looking to continue that strategy.

“While we were founded in Silicon Valley, have headquarters here and a lot of successful investments in Silicon Valley, we spend a lot of time looking for great companies outside of Silicon Valley,” Sanders told Crunchbase News. “In today’s environment, Silicon Valley isn’t the only place to build a great company. There’s a lot of talented entrepreneurs outside of a tech hub trying to build a great tech company.”

TCV doesn’t want to play a passive role.

“We’re looking to at making scale investments,” Sanders said. “We’re looking to be active partners with a company that also is looking to scale.”

Besides the desire to scale, I asked Sanders what other criteria is TCV looking for in an investment. His answer was threefold:

• Market segment. “We ask if this is a segment of the market we are really interested in, specifically, ‘Is there an identifiable trend that is driving disruption and growth?’“
• Market position. “We also ask, ‘Is this company a leader or, in most cases, the leader in a space?’ We’re looking to invest in and back those companies that have a leading market position.”
• Willingness to partner. Sanders said TCV seeks to be “an active capital partner” that will help firms with expertise and skills to help them grow as well as to provide capital.

Sanders also shared details of the firm’s “flexible model” of investing. For example, it can provide what he described as primary capital, where a company might be looking to take cash to fund growth. Or, it can also make secondary investments, such as buying shares from a founder or prior investor.

Looking back briefly, Sanders noted that 2018 was a robust year for TCV. The firm saw two exits last year in Sweden’s Spotify and Seattle-based software firm Avalara, for example.

“We measure outcomes by the attractiveness of new investment opportunities, how our existing portfolio companies are growing and our ability to generate liquid for our investors in the form of realized returns,” Sanders told Crunchbase News. “Across all three of our dimensions, 2018 was a very good year.”

Illustration: Li-Anne Dias