Active Capital, a venture capital firm that's based in San Antonio and frequently makes investments in Austin, has raised a new $25 million fund to back early-stage software startups.
But, as the pandemic emerged last spring, the firm's partners thought a second fund may never come together.
The stock market was repeatedly crashing, which made many wealthy people who might invest in a VC fund more cautious. People were getting sick with Covid-19, including one of Active Capital's key investors. The firm put its meetings on hold, and it began focusing on providing bridge funding and mentorship for portfolio companies from its first, $21.5 million fund that needed help navigating the unknown.
“I guess, in many ways, raising capital for our fund for a little while there felt very small in the grand scheme of things," Active Capital co-founder Pat Matthews said. "I was very nervous about it.”
Yet, Matthews, along with much of the tech world, quickly began seeing opportunities several months into the pandemic as people adjusted. Meanwhile, enterprise software, which Active Capital is focused on, began to become more important to businesses operating remotely and more attractive to potential investors. That has continued.
"It's actually been kind of gangbusters in the second half of the year," Matthews said, noting several blockbuster IPOs, as well as increasing demand for SaaS products.
Active Capital typically leads or co-leads funding rounds in B2B software startups by investing $250,000 in pre-seed deals and $750,000 in seed rounds, though it writes checks for up to $1 million. About a quarter of its portfolio companies thus far have been Austin-based, including ReturnSafe, ProsperOps and LoudCrowd.
Matthews, who previously founded and sold Webmail.us and worked at Rackspace, co-founded the firm with Rackspace M&A specialist Cat Dizon. They're both based in San Antonio, while Chris Saum, director of business development, is based in Austin.
Prior to the pandemic, Matthews said Active Capital had only closed one deal without meeting founders face-to-face. But he said the shift to video conference calls hasn't slowed the firm down; it has made about 20 investments strictly over video calls since the pandemic began. That compares to only one deal done over video before the pandemic.
"With everybody going to virtual meetings, it has leveled the playing field for us," he said. "We're a small San Antonio-based venture capital firm. But now it's just as easy for us to have meetings as it is for somebody in the middle of San Francisco."
Matthews said he's looking forward to getting back to meeting people in person, but he believes venture investing will benefit from a lasting shift toward virtual pitch meetings.
"We really are a national firm," he said. "But with Austin in our backyard, we're very willing to do deals there... but we're B2B SaaS-focused more than geography-focused."
Year-after-year, leaders across the venture capital ecosystem have warned of a slowdown for startup investments after years of big increases in funding. The pandemic brought scores of layoffs at startups across the country, and many failed. But, after a relatively brief slowdown, startup funding, major acquisitions and IPOs have resumed at a fast pace.
"I think that we're going to have quite a bull run in tech for a while," Matthews said. "There's a convergence of new ways of doing business that creates a need for new technologies. And, also, technology continues to advance at a rapid pace."
Industries are also rapidly changing. Matthews said restaurants, for example, have been hard hit by the pandemic. But that's also creating new opportunities.
"Everybody still wants food. But they want it delivered in a different way, or they want it packaged in a different way," he said. "There's so much opportunity that's being created. Anytime there's big macro changes in the world, you're going to find entrepreneurs who chase and pursue those opportunities. And I think that's a lot of what we're seeing now."
