Box, Foursquare, SpaceX Backer DFJ Growth Raises $470M For Later-Stage Investments

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DFJ Growth, the DFJ investment practice that focuses on later-stage investments in technology startups, has closed its latest fund of $470 million. This was an oversubscribed round that fund co-founder and MD Barry Schuler tells me was originally intended to be only $350 million. That underscores two things: a lot of companies that have sprouted in the last several years are now approaching much larger, mature stages; investors want to fund them in the hunt for the next super unicorn.

As for where the money is going, Schuler says that DFJ has already made several investments out of this fund that span both software and hardware efforts. These include rounds for DataStaxFormlabsFoursquare and Simplivity — all of which have been announced previously.

Schuler says that focus points for this fund will be areas that may not have seen as much attention in the last couple of years, which he and the other partners think are going to re-surface in prominence again in the ongoing cycles of the tech world.

“We’re pretty involved investors and we don’t tend to follow the hot team du jour,” he told me in an interview. “It’s why you see us in Elon’s companies Tesla and SpaceX. It’s not areas that Sand Hill Road was that interested in… We are very picky but we are also looking for companies that can be very big.”

That interest, he says, was what brought DFJ Growth to enterprise investments eight years ago. “I would say that we tend to be counter cyclic,” he says. “In our first fund, no one wanted to touch enterprise at a time when we were investing in Good Technologies and Yammer and later Box. Now it’s a very hot category.”

Fast forward to today, and Schuler — who once was a CEO of AOL (long before it became an owner of TechCrunch) — has other ideas about what is hot and what is not.

Social is “cooling down quite a bit,” although he says his firm sees this as “just a pause before the next new wave.” (You have to take this with a grain of salt, of course: the company has put a lot into businesses like Foursquare that are banked on the continuing rise of social.)

Meanwhile, one big opportunity, he says, will be in content and other media — “areas that have not been all that interesting to the venture world because of the multiples, but we think there are exciting plays there, interesting things coming out of media.”

Think here not just of the explosion of new “screens” on which to consume video content in the form of smartphones and tablets, but also the rise of other kinds of new hardware, and the shift in how people spend their leisure time. This could be about investing in Netflix-style companies, or those that are helping the Netflixes of the world deliver and monetise their products.

“We are in the middle of very sacred format that is now changing,” he says. “It’s not just TV shows and movies. The very way that we consume information is changing. It’s not even close to having been invented yet. The last 10 years of the Internet have been based on the Google model of commoditized content. Now we are emerging from that with new ideas about branding and what it means to create high quality content.”

Some of this will be about fixing some of the byproducts of the “move fast, break things” culture that has been a hallmark of a lot of tech innovation. “We’ve done a good job of disrupting media,” Schuler says, “but not a good job of reinventing it. Some interesting companies are now coming to critical mass and we have deep and broad experience in that, and we will be investing in it.”

But while he’s aware of some of the disruption trends, interestingly Schuler appears less interested in others, such as what kind of a role companies outside of the U.S., in regions like Asia for example, may play in this area (either that, or he’s simply not revealing his hand).

“As normal we’ll see a lot of innovation happening in the U.S. and then moving out to various other parts of the world,” he says. “DFJ is very global and we’ve had a huge win in Baidu, but when you look around the world, even in China, what you see is the “Facebook of…” and the “Twitter of…” The bulk of innovation is still happening here in the U.S.”

That said, he admitted to “interesting sparks” in areas like Israel, which has seen increasingly large exits and has been at the forefront of things like 3D printing.

There is also another important financial trend that does not appear to be going away — and judging from the latest developments of the IPO market, only growing.

“When we launched the first fund in 2006 the idea was that companies would be staying private longer and would need more capital and have bigger IPOs,” he says. “What was just an idea for us at the time, we have now seen it play out in the last nine or so years and it has worked out well for us.”

But does he think that valuations in tech have become too overheated? Not exactly. His approach appears to be: just ride the wave as best you can without falling off your board.

“I’m old enough to have lived through five cycles in tech, and anyone who tells you that the bubble is going to burst or we’re not in a bubble… I will tell you that they are both right,” Schuler says. “The market is always cycling. Overheated, undervalued. It’s part of our investment environment. We all have to deal with that and the valuations that we pay. Entrepreneurs have to make the decisions of whether they want to deal with the valuations and push for the right products as a result of that. If you have the right products that the market wants you will land in the right place.”

In other words, he doesn’t appear too worried about whether one of his portfolio companies, Box, will go longer term. Speaking generally, he said, “With the companies that are teed up for IPO, if the market has cooled off and they have to wait to bounce back, if they have cool businesses they will be fine. You can never time the market, and the market is always irrational.”

As a marker of how tech continues to become ever more mainstream, we’re seeing a very rapid amassing of funds at the moment in the VC world to help startups rise to the challenge.

Pinpointing just DFJ, this is DFJ Growth’s third fund since it opened for business in 2006 and comes on the heels of DFJ announcing part of this fund, $405 million fund, one year ago, and the closing of DFJ Venture XI, a $325 million fund for early-stage investments, in February 2014. (That rapid amassing of investment money is another sign of the state of the market). In total, DFJ Growth has raised around $760 million for later-stage investments.

While DFJ Venture has seen a shift in who is running the fund, DFJ says the team running DFJ Growth will remain the same. Co-founders John Fisher, Mark Bailey, Randy Glein and Barry Schuler will remain at the helm.