Next Coast Ventures, a relatively new Austin venture capital firm, announced Thursday it has secured more than $85 million in commitments for its first fund.
The firm, formed by Tom Ball and Mike Smerklo in 2015, has already invested in a few Austin-based startups, and the VCs plan to invest in 20 to 30 more emerging companies in Austin and other areas over the course of two to three years with $2 million to $5 million checks -- mostly Series A and B rounds.
Ball and Smerklo anticipate most of Next Coast Ventures' deals will come as part of a syndicate of investors. And both men have strong ties to Austin's top VCs as well as long-time relationships with some of the nation's biggest tech companies and VC firms in Silicon Valley.
"Our big belief is that syndication is critical," Smerklo told me. "It's not just dollars, it's strategic value, as well."
Syndication is key for growth-stage and expansions stage startups in Austin because the city's startup ecosystem, while incredibly active at seed and early stages, lacks the expansion stage VC firms that can consistently lead deals with investments of more than $10 million. But by leveraging connections in Silicon Valley, firms like Next Coast can bring in talent and dollars from the West Coast where money flows much more freely.
For example, Ball and Smerklo took executives from one of Next Coast's first invesments, Austin-based Phlur, on a three-day trip to Silicon Valley before Phlur had begun raising money just to build awareness and set the stage for potential future syndicated deals. Ball said that's they type of connection that can help Austin startups attract outside capital when it comes time for later stage investment.
"Geographically, we think 50 to 60 percent (of investments) will be in Austin for this first fund," Ball told me.
Smerklo and Ball are both in Austin but spend at least three days a month in Silicon Valley. To date, the firm has publicly named six investments, five of which had co-investors:
- Dropoff, an Austin on-demand B2B delivery service and logistics provider
- Phlur, an Austin-based fragrance startup led by former Ralph Lauren executive Eric Korman
- OnRamp, an Austin data security company
- Umuse, and Austin company in stealth mode working on workplace software tools
- Clarity Money, a New York-based AI fintech company
- Cloverpop, a San Francisco-based software platform for business decision making
Next Coasts' future deals will focus on a variety of business types, including software-powered, full-stack business models for digital natives, edtech, retail and business- and consumer-oriented ventures.
How Next Coast Ventures Raised Its Fund
Like many big investment deals, Next Coast Ventures fundraising started with their own personal investments. While at traditional firms, founders typically contribute less than 1 percent of the overall investment pool, Smerklo and Ball said they launched their fund with a significantly larger percentage of personal money invested (they wouldn't say exactly how much).
"We thought, and not to be arrogant, but we're pretty good at this and there's a massive opportunity in Austin and other markets," Smerklo said. "So we put our money where our mouths are."
But Next Coasts' fundraising also leveraged their names and experience, and it plays in the firm's slogan of brining Silicon Valley DNA to Austin.
Smerklo was CEO of ServiceSource from a time when it only had 35 employees through its IPO and beyond and he is the co-founder of Nucleus Growth. Ball, meanwhile, was a general partner with Austin Ventures for 10 years. Before that he founded Tahoe Domains and co-founded Openfield and Razorgator Interactive and others.
The relationships they made through those ventures helped lead to Next Coast's initial investments from ultra high net worth people (typically those with $30 million-plus in wealth) the VCs have done deals with in the past in Austin, Silicon Valley and a few other areas.
Next Coast had set out to raise a $50 million fund less than a year ago, and was able to draw significantly more than expected.
The VCs declined to share names of any investors. But they said individual investors covered roughly a third of the $85 million fund, with the remainder coming from institutional investors. It is the largest fund in Austin since LiveOak Venture Partners closed its $109 million round in 2014, which, at the time, was the largest early-stage fund in Austin in five years.
Next Coast is part of a new wave of venture capital and seed capital firms in Austin that join more mature funds like LiveOak and Silverton Partners. Earlier this week, Silverton Partners filed papers to fund a fifth investment pool. Its previous two funds were $75 million, and the new fund aims to raise $100 million. As a comparison, Austin Ventures last fund in 2008 was $900 million, about a third of which was dedicated to early-stage companies.
“Austin has already arrived in the VC realm but now it needs to evolve,” Smerklo said in a news release. “We are finding outsized opportunities between the coasts with talented, tech-savvy entrepreneurs with vision. Our connections to Silicon Valley mean we can ink deals that accelerate our startups’ growth and open them up to national and international markets—turning the middle of the country into the center of the next tech revolution.”
