The new fund coincides with a move to investing more in the seed round, about $100,000 to $250,000 per new investment instead of $25,000 to $50,000. It also gives SoftTech the option to invest larger amounts in "winners" in follow-on rounds. A typical seed investor can't follow on in later rounds because of what's usually, by definition, a small fund. "We do the work so we might as well have the ownership that reflects it," Clavier says.
Clavier previously held a first close of $15 million on the fund back in December 2010. The fundraising was slow at first, because Clavier was seeking a new set of investors who would be willing to invest in a larger fund, he says. And many institutional LPs are either too big to invest in a seed-stage firm, are wary of this sector, or are already invested in another seed fund. But his firm had some nice growth in 2011, with some of its recent investments exploding in growth. Portfolio companies such as Fab.com, a former gay social network that shifted into ecommerce, just raised a massive new round $40 million round led by Andreessen Horowitz. Clavier first invested in the company just a year earlier in a $1.75 million seed round. Another fast growing new company is Betterworks, which recently closed an $8 million round at a valuation of about $100 million.
These early eye-popping step ups in valuation helped bring in LPs. The majority of the fund came from institutional investors such as include Stepstone Group, Affiliates of AMG National Trust Bank, Cendana Capital and Industry Ventures. Family offices and individual investors also participated.
The economics of seed funds are such that if you're a small fund and you invest at a low valuation you can make nice multiples that surpass many venture funds. But as you get bigger and closer to the size of a venture fund (say $100 million at minimum) it's more about cash-on-cash returns, not just multiples. So having a larger fund enables SoftTech to invest more in its top companies and lift its cash-on-cash returns. "They way we think about it is, how can we engineer a 4x fund?" Clavier says.
SoftTech invests in social, ecommerce, mobile, gaming, mobile infrastructure and software-as-a-service. Clavier's previous fund, raised in 2007, was a $15 million fund. That fund had exits such as Milo, which was acquired by eBay; Tapulous, which was acquired by Disney; and Goodrec, which was acquired by Groupon. It also has positions in companies such as Blekko, Eventbrite, Fitbit, and Bleacher Report. Previous investments include Mint.com, Truveo, Kaboodle and Kongregate.
In concert with SoftTech and other seed funds raising larger funds, some round sizes and valuations on seed rounds for popular startups are also rising. What used to be a $2-3 million pre-money valuation, now could be $4-6 million, Clavier says. Startups are realizing that it's better to have a longer runway so that they can validate their products before raising a larger venture round, Clavier says. That's where these larger seed funds now come in.
Clavier also recently brought on Charles Hudson as a venture partner at the firm.
