SoftTech VC Raises $85M For Its Fourth Fund

Our firm SoftTech VC hit three critical milestones in 2014: we opened our San Francisco office in April, celebrated our ten year anniversary in May, and now with great excitement, we are delighted to announce the close of our latest fund, $85M SoftTech VC IV. This brings our total capital under management to $155M.

Why $85M, which is quite a bit more than our $55M Fund III raised in 2010-11? That fund backed 55 companies over 3 years, as planned. About $25M were allocated to initial investments, and $30M were earmarked for follow-ons. Things worked perfectly until we saw the median size of A rounds increase from $5-6M to $8-10M in the last year – with a few of our companies raising up to $15M. Not a bad problem to have given the traction that they had developed, but these large rounds threw off our reserves model. So we decided to increase the size of Fund IV to allow for a larger follow-on budget.

With this new vehicle, we’ll have an initial minimum bite size of $500K, an average of $700K and the flexibility to go over $1M to reach our target ownership of 7-10%. We will then selectively invest our pro-rata, or buy up, in A and B rounds of companies that are scaling well. Our plan is to back 50 companies over 3 years, and we are off to a great start with our initial investments in DocSend, Panorama Education, Halo Neuroscience, Niche, Stitch, Soldsie and Sapho since our first close in October 2013.

We expect that  80% of the portfolio will be located Silicon Valley, with New-York, Boulder, Toronto-Waterloo and SoCal representing the balance.

Over the years, we have evolved from our initial B2C focus to a more balanced interest in B2B and directly monetizable B2C opportunities. Our key sectors are Software-As-A-Service (SaaS) – including mobile infrastructure and services, vertical SaaS and cloud infrastructure, B2C services and connected devices, and marketplaces. And we’ll continue to invest in many of the new wedges we began exploring in Fund III, like Digital Health, EdTech, and New Platforms (buzzword alert: drones, bitcoin/blockchain, glasses/VR).

Despite the ever-increasing “noise” in the seed market, Charles, Stephanie, and I are super excited about the variety of opportunities and high caliber of founders that reach out to us on a daily basis. Our job is to sift through a funnel of 2,000 to 3,000 opportunities per year, invest in 15, help them staff up, launch their product, and build their sales and marketing engine to successfully raise follow on rounds from the best VC firms.

We’re also most grateful for the people who make this possible: our LPs. SoftTech VC funds are backed by a mix of institutions, family offices and individual investors – often successful entrepreneurs from previous SoftTech portfolio companies. SoftTech VC IV’s anchor LPs, including Michael Kim at Cendana Capital, led a syndicate of 20 institutional LPs and 40 individuals (43% Fund of Funds, 23% Family Offices, 15% Endowments & Pension Funds, 10% Foundations, 9% Individuals). Thank you all for your support.

And finally, I’ll take this opportunity to recognize, and express my appreciation to my awesome team: my Partner Charles, our Principal Steph and our fantastic assistants Ashley and Kat. Thanks to you guys, we’re writing the fourth chapter in the second decade of SoftTech. Much to look forward to!

The SoftTech VC Team, at our 10th Anniversary Party: Kat, Ashley, Jeff, Charles and Stephanie

 

Learn More:

SoftTech VC Boosts Its Reserves with $85 Million Fourth Fund – Wall Street Journal – 6/27/2014

Jeff Clavier’s SoftTech VC Raises $85 Million Fourth Fund – TechCrunch 6/27/2014

Micro-VC pioneer SoftTech VC announces $85M fourth fund, points to changing market conditions for increasing size – PandoDaily – 6/27/2014

SoftTech closes fourth fund with $85 mln – PE HUB- 6/27/2014

 


  • Chris Yeh

    Congratulations guys! Looking forward to seeing the next 50 investments.

  • http://captainkinnard.com/ Ben Kinnard

    Nice transparent post. How many of your 50 investments do you expect to double down on in Series A/B? Is there not a risk of signalling problems if you don’t use your pro rata rights on a seed investment?

    • stephpalmeri

      Great question Ben. To start, since we don’t lead Series A investments in our seed deals, we avoid this direct signal – we look for an outsider to lead the next round. As with most seed funds, we expect a certain % of companies (~20%) won’t go on to raise a Series A for any number of factors (better prospects via acquisition, limited traction, shifting market interests, competition, etc.). For these companies, our goal is to identify this early on and to assist a smooth transition that’s best for the company and its founders. Which brings us to the ~80% of companies that successfully attract a Series A lead (and later B lead) – in these instances, we’ll evaluate on a case by case basis the economics of putting our reserve dollars to work to maintain or buy additional ownership (if available) with each round as well as the overall structure of the deal. However, its fair to say that when a company has a term sheet that provides runway to prove their next major milestones, it’s typically in our best interest to double down in these early rounds.