Upheaval in Silicon Valley and worries of a recession have thrown a chill on much of the venture capital market in 2023, but Arthur Ventures still drew significantly more money for its latest funds.
The Minneapolis-based venture capital firm said last week it has raised $470 million, to be split into a $300 million venture fund and a second growth fund of $170 million.
The firm's strategy remains the same as in previous funds (it's had four previous rounds): to focus on early-stage B2B tech companies outside of Silicon Valley. Arthur Ventures last raised a total of $375 million for two funds in 2021.
Overall, the firm now manages $1 billion million in assets. Its active investments in Minnesota companies include Total Expert, WhenIWork, PhData, Recast, Drip and Nomics.
The firm said that all of its previous limited partners had recommitted for the new round, with the new investors including a children's hospital and one of the largest poverty-focused private foundations in the U.S. Neither of those new limited partners were identified.
Co-managing partner Patrick Meenan, in a statement, acknowledged a "challenging market" for raising new funds. While we are very pleased with the result of this fundraise, it was clear that Limited Partners are under more pressure in this environment than in years past," he said, citing factors such as the unsteady public markets, the collapse of Silicon Valley Bank and shocks to the cryptocurrency industry.
That slowdown is being felt nationwide, making Arthur Venture's success something of an exception in the first quarter. In its most recent industry report, PitchBook-NVCA Venture Monitor wrote that "fundraising’s momentum has all but come to a halt, with only $11.7 billion closed across 99 funds," on pace for the worst quarter since late 2017.
While such developments can make investors nervous about putting capital into new ventures, there's a potential upside as well — a bearish VC market can make investing in startups more favorable for investors.
"We expect early-stage software companies to continue to exhibit high revenue growth rates due in spite of macroeconomic headwinds, but we do expect to see a more rational valuation environment for the foreseeable future," Meenan said.
