Industry Ventures’ direct fund targets capital constrained GPs

Capital constrained early investors often need help claiming the pro-rata stake they are entitled to in later funding rounds.

Industry Ventures is aiming to take advantage of capital constraints in the venture capital market with its latest fund.

The San Francisco-headquartered VC manager has raised $300 million for Industry Ventures Direct III, which invests alongside general partners in early- and mid-stage technology start-ups, according to a statement.

The fund launched in December and closed on target, according to PEI data. It received a $30 million commitment from Employees Retirement System of Texas and $20 million from New Mexico Educational Retirement Board.

The 2020-vintage Industry Ventures Direct II raised $180 million, according to PEI data. It had delivered an internal rate of return of 82.67 percent and total-value-to-paid-in multiple of 1.99x as of 31 December, according to data from San Bernardino County Employees’ Retirement Association.

Senior managing director Roland Reynolds said in the statement that the fund’s strategy of supporting “breakout companies in follow-on rounds” is particularly suited to a VC market dealing with a shortage of capital. Capital constrained managers that invest early in a company’s life often struggle to claim the pro-rata stake they are entitled to in successive funding rounds.

VC-backed companies in the US raised $58 billion in the second quarter, 23 percent down quarter-on-quarter and 24 percent down year-on-year, according to EY.

“Macroeconomic factors, including inflation, rising interest rates and geopolitical uncertainties, will continue to serve as strong headwinds throughout 2022 and into the first half of 2023,” the consultant concluded.

Industry Ventures has made more than 130 investments through its direct investing vehicles, either directly or via special purpose co-investment vehicles. Eleven have gone on to list, including Uber and Guardant Health, with 33 achieving valuations of $1 billion or more.

The firm has $5.5 billion in assets under management across primary and secondaries private equity and venture capital.