SoftTech VC, a San Francisco-based seed-stage fund founded 11 years ago by investor Jeff Clavier, has promoted two of its senior investors to full partners, a move seemingly geared to bolster the firm as it seeks to raise a $130 million in fresh capital.
According to new SEC filings, the firm is targeting $100 million for its fifth fund, as well as an additional $30 million for a Breakout Fund designed to support some of the company’s most promising portfolio companies as they mature.
One of SoftTech’s newly promoted partners is Stephanie Palmeri, who joined the firm in 2011 as a senior associate and was promoted to principal a year later. According to Clavier, she’s been spearheading SoftTech’s investments in marketplaces, consumer services, education technology and digital health and has brought 18 deals to the firm, including the social marketing startup Niche, acquired by Twitter in 2014, and the still-private behavior feedback platform ClassDojo.
Andy McLoughlin, who joined SoftTech last year as a venture partner after co-founding London-based Huddle in 2006, is also now a partner with the firm. Clavier says that McLoughlin — who made 36 angel investments before joining SoftTech, including in Postmates — has sponsored and source numerous deals. Among them: OnboardIQ, which helps companies screen and hire independent contractors, and LaunchDarkly, a company that helps startups soft-launch new features.
SoftTech’s newest funds represent a sizable step up from the firm’s last two funds, which were $85 million and $55 million, respectively. Still, they’re likely to be comparatively easy sell for institutional investors. One big reason is SoftTech’s seed investment in the now-public wearable fitness company Fitbit, which was valued at roughly $7 billion as of December, when investors’ lock-up period expired. (Fitbit’s stock has since fallen precipitously, though it’s still valued at $3.9 billion.)
Clavier told us back in October that SoftTech also sold part of its stake at the time of Fitbit’s IPO last June. We talked with him again this past weekend for more information.
TC: Fitbit was your first IPO and it was doozy, but the stock has been falling, partly owing to concerns about competition from Apple. Can you say what percentage of your shares you’ve sold so far? Also, did you deliver your investors stock or cash?
JC: Sorry, but I can’t comment on these questions. I can say that whatever we did was before the holidays.
TC: With three full partners, what will the voting structure be at SoftTech? Will your vote carry more weight than your new partners or will two out of three votes get a deal done?
JC: Everyone has to support a deal in order to get it done. There is always a champion with strong conviction advocating for the deal, and he or she leads the due diligence. If and when there is a skeptic, we’ll often have that person participate in the due diligence phase to make sure all questions or doubts are answered. There is obviously respect amongst us as a team, and if one of us really wants to do a deal where he or she has an established track record, others will defer and support – unless the “over my dead body” card is pulled, in which case we pass.
TC: Having promoted Stephanie and Andy to partner, do you now need a principal or associate? Will you be hiring any time soon or are you happy with this flatter structure for now?
JC: We’re just back from our partner retreat, during which we have discussed some evolutions of roles and responsibilities in the team. We’ll look at bringing new resources (full time, or as consultants) to increase our bandwidth, but no investing hire is planned in the short term.
TC: For those who may be curious, what are you three biggest exits in recent years, aside from Fitbit?
JC: Gnip [a data company that was acquired by Twitter for $134 million in 2014], Brightroll [a video ad platform acquired by Yahoo for $640 million in 2014] and LiveRamp [a maker of data onboarding software that was acquired by data management firm Acxiom for $310 million in 2014].
TC: What are you funding right now? What have your last three investments been?
JC: The last 3 are all stealth investments But our general investment strategy is to back awesome founders building a differentiated product or service with a large market opportunity. We’re very committed to SaaS/B2b right now and have been for the last four years, including vertical SaaS, infrastructure, application stack and developer tools and services. We also continue investing in marketplaces, both B2B and B2C; we’ve increased our exposure to connected devices; and we’re now limiting consumer investments to directly monetizable services.
The sectors where we’ve been active in the last three years are education technology, including life-long learning, and healthcare IT. We’re also exploring new sectors like govtech and [looking] into services using AI, AR/VR and robots. We’ve already made two exploratory investments in the latter.
TC: The market looks to be tougher this year, as you’ve yourself acknowledged. How does that impact your day-to-day at SoftTech?
JC: Not much. We’re paying a great deal of attention to the selection of opportunities (we only invest in businesses right now, no momentum plays); we’re focused on the composition of investment syndicates, to make sure that everyone involved is going to add value and not ride on the back of active investors; we’re [focused on] the amount of runway we’re getting through large-ish seed rounds (most are $2 million to $3 million to get a minimum of 18 months of runway); and we’re trying to get the highest-quality follow-on investors we can.
In the last couple of years, we have had a close to impeccable track record in raising follow-on rounds, with 40 companies that have gone on to raise $800 million-plus in Series A, B, C, and D rounds. I don’t expect that same success rate to continue in this year and next. Rounds are getting much tougher to come together, with traction and revenue hurdles getting higher, valuations lower than six months ago, and terms that aren’t as friendly.
Pictured: SoftTech’s entire team, including, far left, Charles Hudson, a longtime partner with SoftTech who last year transitioned into a part-time venture partner as he raises his own debut fund under the brand Precursor Ventures.