Tysons VC firm raises $250M fund to back local government services companies

Blue Delta Capital Partners, a Tysons-based venture capital firm, is preparing to make more equity investments in local growth-stage tech firms serving the federal government following the close of a $250 million fund.

The firm plans to offer noncontrolling ownership investments of between $15 million and $50 million from its Blue Delta Capital Fund IV, its largest fund to date and one that follows the $215 million Fund III it launched in December 2021. Blue Delta Capital boasts more than $665 million in assets under management across several funds it has launched since its founding in 2009.

For Fund IV, which Blue Delta Capital General Partner Mark Frantz told me took only a few weeks to raise, the firm plans to back established firms that need additional capital for growth. These companies must generate at least $40 million in revenue annually and provide some sort of service or solution for the U.S. government.

"Think mini SAICs, mini CACIs, mini Leidoses on a much smaller scale," Frantz told me. "They're people who work and learn and grow up around here doing high-end software development, they're working on cybersecurity stuff, cloud analytics, AI and [machine learning]."

Frantz said he expects to cut two to three checks per year out of this fund and envisions having it fully deployed in the next three years. While he declined to share the names of the dozens of U.S.-based institutional investors that participated, he noted all but one of them are repeat investors from prior funds from the firm.

He added that even though capital from the fund has been solicited from across the country, it'll likely only get invested into companies that have a headquarters somewhere in Greater Washington.

"This is our hometown; this is a hometown fund focused on our hometown sector," Frantz said. "This is where the money is going to get deployed."

Frantz said in addition to the financial backing, Blue Capital Capital, which has about a dozen employees, will help the companies with operations and talent recruitment as well as M&A support to help them grow. He noted that the fund's relatively smaller size compared to some of the firm's peers will allow Blue Delta Capital to have more favorable terms with its limited partners and portfolio companies.

The arrival of the latest fund could come as a boon for local tech firms seeking outside investment.

According to a July report from data analytics firm PitchBook and the National Venture Capital Association, the number of venture capital deals to Greater Washington companies is continuing to see an overall decline, a trend mirroring national activity that appears to favor bigger bets at the expense of more frequent ones. It's estimated that local firms reached terms for 67 venture capital deals between April and June, down from 102 deals in the second quarter of 2023 but a slight uptick from the 64 deals in the first quarter, a revision from initial findings.