As follow-on rounds get larger and bigger investors begin dipping down to take stakes at earlier stages, the fund, which had previously raised $20 million, realized it needed to super-size to hold on to its stakes in winning companies, according to managing partner and co-founder David Hirsch.
“We didn’t want to lose the potential for farming it all away,” said Hirsch, previously Google’s number two employee in New York. “We want to be able to take advantage of the market between seed and Series A. [And] we wanted to have the ability to infuse more capital post seed and build better positions before people go out for the mega-rounds.”
Metamorphic isn’t the first firm to raise a bigger war chest for investments — even at the seed stage. First Round Capital raised $135 million for its last fund, even with a focus on early stage investment.
The meteoric rise of Indiegogo from a $1.5 million seed to a $15 million Series A followed by a $40 million Series B goes a long way towards proving the validity of having cash in reserve so early investors aren’t diluted out of a hot deal.
New cash has also meant new commitments in startups for Metamorphic, which has used some of its latest fund to make investments in companies like: TapCommerce, Sulia and the yet-to-be-announced Fuisz Media.
Founded in the wake of the financial crisis, Metamorphic has structured itself around four investment quadrants: platforms, media companies, commerce companies and brands, and payments companies.
With its first $20 million fund, the firm’s partners sought out experts in each of those quadrants to serve as limited partners and advisors.
Roughly 85% of the capital committed to the first fund came from those advisors, Hirsch said.
From its perch, Metamorphic has ridden the wave of New York’s surge in venture investment. Formerly known solely for its advertising and financial prowess, New York has usurped Boston as the East Coast’s new center for startup activity.
And the firm sees continued value in both its New York base and its network of advisors, which now includes Gokul Rajaram, the head of product and engineering at Square; Mindy Grossman, the chairman and chief executive of HSN; Rob Master, a vice president of media at Unilever; David Sable the chief executive at advertising and marketing giant Y&R; Brian Lee the chief executive of Honest Co.; and Peter Sachse the chief store officer at Macy’s, among others.
“This is where New York City wins,” said Hirsch. “Several major industries are here and the next wave of commercialization is upon us.”
Photo via Flickr user Kevin Dooley