This morning, the Bay Area venture firm Scale Venture Partners is announcing the close of its newest fund, Scale Venture Partners V, L.P., with $335 million, up from the $300 million fund it closed in May 2013.
Scale, once the venture arm of Bank of America (it split off from the bank 10 years ago), says its capital came from a wide array of pension funds, foundations, funds of funds, financial investors and family offices worldwide, including previous and new investors. (BofA is no longer an LP.)
The firm, which focuses primarily on enterprise investments, is run by longtime colleagues Stacey Bishop, Kate Mitchell, Rory O’Driscoll, and Andy Vitus, along with their newest partner, Ariel Tseitlin, a former director of cloud solutions at Netflix who was promoted from venture partner in 2014. It also recently announced the promotion of former tech banker Susan Liu to vice president from senior associate.
Like a lot of other firms able to raise funds right now, Scale has had a string of exits in recent years, including the IPOs of the online storage provider Box. We talked via email with several partners of the firm earlier this week to get a better handle on where it might be shopping next (among other things).
TC: Aside from Box, what are some the firm’s most recent “wins”?
SVP: Most recent and notable exits aside from Box IPO include the IPO of [the online marketing software company] Hubspot, the IPO of [the cloud telecom company] RingCentral IPO, and the sale of [marketing software company] ExactTarget to Salesforce. We are also really excited about portfolio companies like DocuSign, Chef, Demandbase and DataStax.
TC: So we have some idea of where the firm is looking to shop right now, what are some of Scale’s newest investments?
SVP: Scale invests in enterprise technology companies, primarily those focused on selling software to businesses. Our two most recent investments, JFrog (announced yesterday) and [user identity company] Stormpath, represent our focus on the automation of DevOps and developer services. On the business application side, we’ve invested in companies that are fundamentally changing how we work and collaborate, such as [the online project management startup] Wrike, and those companies that are leveraging machine learning for smarter analysis, such as Aviso.
TC: What’s a theme or two that the firm is tracking that it wasn’t two years ago?
SVP: We see the evolution of machine learning and automation as a compelling trend for both business apps and cloud infrastructure.
TC: Are you seeing a meaningful drop in valuations right now?
SVP: It is too early to tell for sure but it feels like the late-stage market has cooled down. This isn’t where we typically invest, so much of this is anecdotal, but it makes sense. Valuations in the private market have been out of whack with the public markets for over a year, with the private markets having been much more willing to pay up for high-growth, high-burn companies. Many of these companies have been able to demonstrate growth but [not] profitability. This works for a while, but eventually becomes unsustainable.
TC: How are you feeling about 2016 generally? Are you expecting more companies to go public and/or be acquired than last year? Any predictions? For example, do you think mutual fund companies and other later entrants onto the venture-investing scene are likely to stay or go?
SVP: Speculating about the number of IPO’s and acquisitions that will take place in 2016 is an exercise in futility. All you can say for sure right now is that based on the worst stock market start of the year in history, it’s hard to be super optimistic.
As for the mutual fund investors I would imagine they are gone. If they’re still feeling bullish, then there are now public companies for sale at discount prices.
TC: What most excites the firm right now?
SVP: If there is a single idea behind Scale’s tech predictions for 2016, it’s the role reversal between humans and machines. Until now, machines have augmented humans in their jobs. Now we step aside as the machines take over and ask for our help when they need it. We’re still unquestionably smarter, but the competence of the machines is such that they do the job and we help when they get stuck. The machines are driving themselves, automating our data centers, mining for insight, securing our commerce, and finally, inviting us into their virtual world.