Underscore.VC targeted $75 million for its first fund, but now is set to announce the fund is closed at an oversubscribed figure of $85 million.
And, according to Underscore, this is only the first of "many funds over a lifetime."
Founded in 2015 as Assemble.VC, Underscore is a Boston-based seed-to-A firm focusing on investments in cloud intelligence. Michael Skok and John Pearce, co-founders and partners at Underscore.VC alongside C.A. Webb, told us they have a "multigenerational" vision for Underscore.VC. Younger associates at the firm joined the general partners in meeting with limited partners during fundraising, Pearce said--which could help Underscore avoid the generational shift that doomed Skok's prior firm, North Bridge, and firms that came before it.
“This is a multi-decade business and we’re focused on making it multi-generational,” Skok told BostInno. “The investment isn’t just about today. It’s not just about fund one… We told the LPs not to bother committing if they weren’t going to commit for fund two and fund three.”
In their opinions, it’s a matter of letting entrepreneurs know they will be sticking around.
Underscore is one of several so-called networked VC funds springing up in Boston, which propose innovations on the idea that a VC's best asset is a rolodex of excellent advisors and co-investors. Underscore's innovation on that approach is an ownership structure that, instead of paying advisors in dilutive company stock, gives them carry in Underscore's fund, paid out of the VCs' pockets on a deal-by-deal basis. They receive returns on that investment, not the fund, at the time of exit. Advisors can also invest in portfolio companies, alongside the fund, on the same terms.
“It’s as if they were investing from our fund,” Pearce said. He added that all of the returns are paid out to Core members before the LPs.
The system that handles that carry structure relies on software built by AngelList for its syndicates, with far-from-vanilla terms set up by Pearce for the transactions. Underscore calls its network of advisors, mostly operators in other technology companies in the Boston area, its "Core," and invited about 200 of them to a day-long "summit" of panels and discussions, last week.
In other ways, Underscore is more like a traditional VC. It raised its fund with large institutions--universities, hospitals and global foundations--unlike other new, small funds that have raised with numerous individual investors. Also unlike other new funds, like Boston's Pillar, Underscore hasn't eschewed preferred stock.
Underscore doesn't charge a fee, but instead runs the fund on an annual budget basis, Skok said. Instead of the standard 20 percent, carry is "performance based and with a chunk of it reserved for the Core members on a deal by deal basis," Skok said. For now, Underscore's offices are embedded inside the headquarters of Acquia, a North Bridge portfolio company where Skok has a board seat, in Boston's Financial District.
Pearce is a former Demandware CEO. Webb is the ex-director of New England Venture Capital Association. Underscore started as two other new "networked" VCs popped up in Boston: G20 and Pillar. G20, founded by former Advanced Technology Ventures VCs Bob Hower and Bill Wiberg, has raised a $62 million fund. Pillar was founded by another former general partner at North Bridge, Jamie Goldstein, and has since added serial entrepreneur Sarah Hodges as a partner.
So far, Underscore’s investments include Mautic, making open-source marketing automation tools, and Zaius, a behavioral marketing offering.
Editor's note: This story was changed after publication to add an explanation that stock compensation for advisers is dilutive.
