Money continues to flow into new venture capital funds. For example, in the past month, Runa Capital, Lerer Hippeau, Razor’s Edge Ventures, First Star, OurCrowd, Northzone, Janngo Capital and Kapor Capital all announced new funds.
Now it’s Scale Venture Partners’ turn, announcing it secured $900 million in committed capital for its eighth fund, also its largest since forming in 2000. The fund was raised in 120 days over the summer, partner Rory O’Driscoll told TechCrunch.
Known for backing enterprise software, the firm was an early investor in some legacy SaaS companies, including Box, DocuSign, HubSpot, RingCentral and Bill.com. It’s also invested in younger companies, like BigID, Dusty Robotics and Honeycomb.
The timing of the new fund is about right for the firm, which has raised a new fund every two years since 2016, according to O'Driscoll.
“We'd love to get back to a more normal two-and-a-half, three-year cycle, and that's one of the aspirations for the fund,” he added. “Our pace has been very consistent though deal size wasn't all that good.”
Scale is still investing from its seventh fund, and partner Alex Niehenke told TechCrunch that the plan is to deploy capital from the new fund starting in early 2023. He also noted that “the reality is that the pace at which we deploy does have a certain amount of unpredictability.” As such, the firm wanted to raise its fund sooner rather than later so if there were entrepreneurs pitching the firm in the fourth quarter, the fund was closed and ready.
Fund VIII was backed by new and existing investors. O’Driscoll explained that limited partners were on board with the new fund, though they wanted to make sure that Scale wasn’t raising a larger fund than it could deploy successfully.
“Fund size is the enemy of fund performance,” he added. “Our objective is to get to north of 20 deals for this fund and to have nice diversification, both by number of fields and time.”
He went on to explain that the firm’s sixth and seventh funds were stretched over two years, but it was making fewer deals. For example, he said there are still four investments left in Fund VII, and the last will be deployed some time in early 2023.
“This fund is the right amount to get back to achieving our objectives and not to doing something different,” O’Driscoll said.
No investments have been made from the new fund yet, Niehenke said. However, he did say the capital would be deployed in much the same way as Scale’s previous funds, into cloud and SaaS software companies at the Series A and Series B stages.
However, he and O’Driscoll say cognitive applications are “the next generation of software companies,” and many of the investments will go into startups focused on that. Over the past five years, the firm saw “a new wave emerging” around cognitive apps, and while Scale will continue to invest in enterprise technology and cloud software, apps are “another layer on the cake,” Niehenke said.
“We're not abandoning the cloud,” he added. “In many ways, cognitive applications are just bringing that further. If we think about where the next decade is going to be, because that's the time frame that we're investing over, we just see an increasing percentage of our deals really focused on those cognitive applications.”
Meanwhile, the fund will be managed by O'Driscoll, Niehenke, Stacey Bishop, Andy Vitus and Ariel Tseitlin, as well as recently promoted partners Jeremy Kaufmann and Eric Anderson. In addition, Sam Baker was promoted to principal, Noah Gross and John Gianakopoulos to vice presidents and Javier Redondo joined Scale as a principal.