Greycroft grabs $200 mln for growth fund

Greycroft Partners has closed on $200 million for its first growth fund, joining other early stage venture firms raising growth funds in hopes of not missing out on later-stage investments in portfolio companies that have proven their mettle.

Greycroft Growth began fundraising in February with a target of $160 million, then held a one-and-done close this week, said Ian Sigalow, one of five partners in the New York-based firm. (All of the partners in Greycroft’s early stage fund are partners in the growth vehicle.)

(Update: Here is the fund document Greycroft filed with the SEC.)

“We wanted to be able to support our companies as they raise series B and series C rounds,” Sigalow said. “It’s really challenging for early stage venture funds to reserve for those rounds out of small funds. We also wanted to be able to invest in companies we’ve known for a while and we may have missed the A or B.”

Dana Settle Greycroft 4x6Greycroft Growth expects to invest $5 million to $10 million per round in about 25 companies. The investment period is expected to be about three to four years. Sigalow noted that Greycroft will not participate in a growth deal unless another investor leads and sets the price.

The fund made its first investment late last month, participating in a $17 million Series D round for analytics company App Annie, along with IDG Capital Partners and Sequoia Capital. Greycroft previously had invested in App Annie’s Series B and C rounds.

Greycroft recently enjoyed a significant return from its $5 million investment in Maker Studios, a YouTube network bought by Disney in March for $500 million, with the potential for that amount to grow to $950 million if certain milestones are met. Greycroft owned about 15 percent of Maker Studios, which translates into a 15x return, Greycroft founder Alan Patricof said at Thomson Reuters’ PartnerConnect East conference in New York in March. As big as that return was, Greycroft could have made even more if it had had a growth fund to participate in Maker’s later rounds.

Missing out on meaningful participation in the growth round for Maker, as well as other successful portfolio companies was the primary impetus for Greycroft’s growth fund. Buddy Media was acquired by for $695 million in cash and stock in 2012, while Braintree sold to eBay for $800 million last September.

Alan Patricof Greycroft 2014 4x6“All of the companies [Buddy, Braintree and Maker] raised growth financing, and we participated in a relatively small way, but it would have been nice to participate at $5 million,” Sigalow said.

Sigalow declined to name limited partners in the new fund. However, he said 70 percent of the LPs had participated in Greycroft’s prior funds. Corporate pension plans, endowments and funds of funds each accounted for about one-quarter of the commitments, while foundations chipped in about 10 percent and the remainder came from family offices and individuals, he said. The largest commitment came from an unnamed “anchor” LP that contributed about 10 percent of the fund.

One Greycroft LP who asked not to be named said he expects other early stage funds to raise growth vehicles, noting that he has met with other firms exploring the idea. “If I had to handicap it, most of the top-tier early stage funds will have growth funds in the next few years,” he predicted. “It’s a natural extension of their business, and they’ve been leaving too much value on the table.”

The first early stage firm to raise a growth fund was Union Square Ventures, which closed on $200 million for its Opportunity Fund in 2011, and $175 million for a follow-on growth fund in January of this year. Just last month Spark Capital raised $375 million for its own growth fund.

Founded in 2006, Greycroft has raised three early stage funds. It raised $75 million for its debut fund, $130 million for its sophomore fund in 2010 and $175 million for its third fund last year. It has five partners: Patricof, Sigalow, Dana Settle, John Elton and Mark Terbeek.

Photos of Ian Sigalow, Dana Settle and Alan Patricof courtesy of Greycroft Partners.