How Mercury’s new hire points to venture capital’s exit focus

Houston-based venture capital firm Mercury is expanding its team, and its latest hire will focus on the firm’s direction for 2024 and beyond.

Mercury focuses on software startups originating outside of the traditional venture capital behemoths on the East and West Coasts. Blair Garrou, managing director of Mercury, said the focus for the firm in the near term is driving returns.

“The limited partners, especially institutional LPs, are demanding liquidity, they’ve put a lot of work into this asset class for the past five to six years and they either are or will be denominator-affected,” Garrou said in an interview with the Houston Business Journal. “When you have an investor base like Mercury’s, which is family offices, endowments, and foundations, they need liquidity to fund budgets and projects and to reinvest in other things. So, we must drive returns.”

The recent hire of Mercury's new partner Devin Redmond represents a shift at the Houston-based fund toward exiting its portfolio companies after the close of its fifth fund last year and ahead of any potential future fundraising activity.

Redmond’s background is in exits, having previously worked at Goldman Sachs and Wells Fargo. He highlighted his role in exiting Milpitas, California-based computer chip startup Pensando Systems to Advanced Micro Devices Inc. in a deal valued at approximately $1.9 billion.

“I’ve loved [Mercury’s] investment thesis for a long time, even when I first started my career,” Redmond said. “There are more capital efficient businesses between the coasts, your entry multiple [or price paid for a company] ends up being a little bit cleaner, not as expensive. Especially as investors come back to earth and become a little more risk off and focused on profitability — I think that will underscore our thesis a little bit more.”

Garrou said Mercury’s hires tend to correspond with the closing of funds. In addition to Redmond, the firm is seeking to bring in a Houston-based analyst.

Fund V closed with $160 million in capital commitments in September 2023. Mercury confirmed that several investments had gone into companies like RepeatMD, which develops rewards programs for wellness spaces, and Brassica Technologies, which delivers transfer services between traditional banking institutions and those relying on newer innovations such as Web3.

The focus on exits comes as venture capital and private equity firms seek liquidity in 2024, Garrou said. A report from Boston-based Bain & Co. said that exit value had dropped 66% in 2023, with $3.2 trillion in unsold assets pressuring general partners to find deals.

However, in a first quarter report for 2024, Pitchbook and the National Venture Capital Association said there was room for optimism in the exit space, thanks to the strong initial public offerings of Astera Labs and Reddit. Both of those technology companies carried traits similar to those of investor-backed startups, Pitchbook said.

Garrou said in Houston, Mercury does not have a timeline for its next fund, and that its closing could depend on the exits the firm makes. Last year Brassica, which was founded by serial entrepreneur Youngro Lee, was acquired by Palo Alto, California-based BitGo only 10 months after its seed round.

“We're just excited for the environment, we're getting ready to move, we think the capital markets are improving,” Garrou said. “We’re looking at all this data that I personally have been staring at for 20 years, and I see a market ripe for expanding, I see a market ripe for consolidation and acquisition, I see an IPO market that has never been more open since the end of 2021.”

Last year, Mercury built up its teams both in Houston and elsewhere. Samantha Lewis was promoted to partner in Houston last February, while the firm added Chicago venture capitalist Eddie Lou as a partner in Chicago, where Garrou said his network would be most effective.

Mercury is ranked No. 9 on the Houston Business Journal's 2024 Largest Houston-Area Venture Capital and Private Equity Firms List with approximately $700 million assets under management in 2023.