The first venture capital fund dedicated to backing Arizona startups with money almost exclusively from investors inside the state, said it has closed its first fund with a total of $110 million — $10 million more than it was shooting for.
The fund, called AZ-VC — which got its start under the name InvisionAZ — has already poured money into a pair of startups earlier this year and is expected to announce a couple more investments before the year is out, said Jack Selby, the fund's manager.
Selby said it was heartening to see the oversubscribed support. For him, that was a litmus test that shows the Arizona community has a strong motivation to support local entrepreneurs.
“I honestly didn’t know that that was going to be the case,” he said. “The Arizona community has backed us and put us in business.”
Pinnacle West, Trinity Capital back the fund
Anchoring the fund is $25 million from Pinnacle West Corp. (NYSE: PNW), the parent company of APS. Selby said some other investors include Bridge Bank, a division of Arizona-based Western Alliance Bancorp (NYSE: WAL); Salt River Project; Trinity Capital (Nasdaq: TRIN); Todd Davis, co-founder of LifeLock; and George Getz, president and co-CEO of Globe Corp. He emphasized that he purposely avoided tapping longstanding allocator relationships in places like London, Tokyo, Abu Dhabi and elsewhere, choosing instead to keep the Arizona fund homegrown.
Selby has lived in Arizona for more than two decades. He’s a member of the so-called “PayPal Mafia,” being one of the early employees of that company, and he has gone on to become the managing director of Thiel Capital.
For Selby, it makes sense that the Grand Canyon State should have its own in-state funding source, sparing entrepreneurs the added struggle that comes with trying to run a “tricky gauntlet” to get backing from faraway investors who often lack the motivation to give much attention to Arizona companies that tend not to be large on their radars.
And even though Phoenix is the nation’s fifth-largest city, in a fast-growing metro with surging entrepreneurial activity, Selby has described the region as a Sonoran “funding desert” where many Arizona companies have been unable to get more than seed-level funding — and when companies do succeed with VC help, it’s the out-of-state investment companies that get to cash in.
On top of that, the current state of the economy has slowed down VC investing significantly, both across the nation and in Arizona. The Venture Monitor from Pitchbook and the National Venture Capital Association recently reported that deal count is slowing down, while the amount of VC money available to invest is at a record level.
AZ-VC fund's preferred investments
For Arizona companies, the slowdown means it’s that much less likely that out of state funds will be bringing help for the time being.
“The fact that the cycle has turned, those folks that are coming in on a parachute are no longer there,” Selby said.
In contrast to that, though, AZ-VC is ready to fill the gap. Selby said the fund already has numerous deals in the pipeline and said he expects to hear from many more Arizona entrepreneurs as word about its existence spreads.
“Two or three [deals] before the year is out, and then we’re off to the races,” said Selby, who added that he expected deal flow to go up exponentially. “I think the ramp is going to be steep and great.”
AZ-VC will focus on series A and beyond, and it will be entrepreneur-centric.
When thinking about the right kinds of companies to invest in, Selby said the fund will look at everything under the sun, but he’s not necessarily looking for a typical Silicon Valley startup. Rather, he said he envisions backing the sectors and businesses that reflect what is already strong in the Arizona economy.
“I want to be unabashedly looking at sectors that we’re good at and those that have an intersection with technology,” Selby said, adding that technology is so pervasive these days that it touches all sectors.
Construction tech an important sector
He pointed to construction and homebuilders as strong sectors in Arizona, and said a company like the car sales platform Carvana exemplifies something that’s natural to Arizona, a company that focused on something traditional and applied new technological possibilities to it.
He said he’ll be taking a generalist type of approach to considering companies, and he jokes that that’s the approach that suits his educational background.
“I’m a liberal arts major,” he said. “If I can wrap my liberal arts brain around a concept, then it works.”
Already receiving AZ-VC money are Phoenix-based construction technology platform Mosaic Building Group, which received $3 million from the fund as part of a $44 million series B round in 2021, and leading an investment round for Tempe-based bookkeeping technology startup Uplinq.
Selby is not worried if launching an Arizona-first fund means others follow suit. He said he’d call that a win.
“If we’re fortunate enough to attract competitors, I honestly think that’s a great outcome,” he said.
Selby said the name change from InvisionAZ allowed the venture capital brand to clearly differentiate itself from the rest of what was being done by InvisionAZ, which is continuing its mission of promoting the state’s technology ecosystem.
InvisionAZ was founded in 2017 and the nonprofit has put on a tech summit each year since, barring a pandemic hiatus last year.
