Venture capital firm Revolution has raised $150 million for Rise of the Rest Seed Fund II – and Steve Case, Revolution’s chairman and CEO, said some of that money could go to local startups.
The new fund has the capacity to make about 100 new investments and Case hopes a number of them will be in Florida and in the Tampa-St. Pete area, he said in an interview with the St. Pete Catalyst.
Case is familiar with the area, after the Rise of the Rest bus tour visited here on May 1. Immertec, a Tampa company with a virtual reality medical training platform, already is a portfolio company for Rise of the Rest Seed Fund I, after winning $100,000 in a pitch contest during the stop in Tampa.
Rise of the Rest is a national initiative to highlight promising startups in areas outside of the major technology hubs. Rise of the Rest bus tours started in 2014 and Rise of the Rest Seed Fund I launched in late 2017. Since then, it has backed nearly 130 companies in nearly 70 cities across 32 states plus Washington, D.C. and Puerto Rico.
The rest of the capital in Seed Fund I will be reserved for follow-on investments in these companies as many have grown faster than predicted, with nearly a dozen companies raising money at valuations above $100 million, according to a news release.
Investments in new companies will be made from the second Rise of the Rest Seed Fund.
Case talked with the Catalyst by phone about the new fund.
Catalyst: Does raising a second fund underscore your belief that there’s interest in technology outside of the big hubs?
Case: I think it’s a sign that the momentum is building, that cities are rising and the entrepreneurs are scaling. It’s very encouraging.
When we did the first fund, just about two years ago, we thought it would be three or four years before we went back to raise another fund. But the fact is that we were able to find 130 companies to back and we are seeing some of them scale, so we can make follow-on investments, so we decided it was time to create a second fund. We are delighted that it came together relatively quickly and most of it was made up of the investors we had in the first fund. [Tampa Bay Lightning owner Jeff Vinik is an investor in both funds.] We also were able to add a handful of new investors as well.
Catalyst: What other signals are you seeing that tech momentum is catching on?
Case: We saw it in the Tampa-St. Pete-Clearwater area. It’s changed a lot in the last 10 years, particularly the last five years. There’s a sense of momentum and a sense of possibilities.
But we also recognize there’s still a lot of work to do. For entrepreneurs in these rising cities, it’s harder to raise the capital to get started, it’s harder to raise capital to scale, it’s harder to attract the talent they need to build these companies, it’s harder to attract the attention and visibility.
Florida is the third largest state and got just 1.3 percent of venture capital last year. California alone got 50 percent of venture capital. Tampa-St. Pete-Clearwater got a sliver of 1 percent of venture capital. So there’s still work to do.
Catalyst: Does the second Rise of the Rest fund mean local companies might get another chance at funding?
Case: Absolutely. Our focus with companies and cities is what we call land and expand.
On the company side, our average initial investment is about $500,000 across the whole Fund 1 portfolio and then we make larger follow-on investments in the most promising companies.
On the bus tour, we build relationships in that process, and in the pitch competition we invest in one company, but over time we want to invest in more companies and there are a number of cities where we have a handful of investments now.
The fact is that we have the second fund and have the capacity, the dry powder if you will, to make about 100 new investments out of this new fund. We would hope a number would be in Florida, including the Tampa area.
Catalyst: What has stuck with you from your visit to Tampa?
Case: I was very encouraged by what we saw.
In terms of what to work on, it’s a mix of things. Obviously there’s a capital issue. We hope there are more investors. Obviously there are some, Jeff Vinik being the most prominent, but we hope there are more angel investors locally, we hope there are more regional venture capital firms as well, as well as hoping more of the coastal venture firms pay attention to what’s happening in places like Tampa.
Talent is also important. All the cities we visited as part of Rise of the Rest have seen a brain drain, where some people left because the opportunities, particularly in this innovation economy, were better elsewhere, Silicon Valley particularly. How do you slow that brain drain and create a boomerang of people returning?
Last month I was in Detroit, where they had something called Detroit Homecoming, where they invite hundreds of people with connections to Detroit – who went to school there, who grew up there — to come back. It leads some of them to become mentors or customers or investors. It also leads some of them to decide to return. So the talent piece is important.
The third is driving more collaboration. It seemed like a number of interesting things were happening in the Tampa-St. Pete-Clearwater area. Some of it is viewing it in a regional context. To us, it’s not Tampa versus St. Pete versus Clearwater. It’s how they work together collaboratively and create new connections to the larger companies, to the universities, etc. So there is much more of a collaborative and inclusive startup community.
We look forward to returning to Tampa at some point and seeing some of the construction projects that were happening. They were pretty impressive.
Closer look: Inside Rise of the Rest Seed Fund II
The new fund will be led by David Hall, managing partner. Partners Anna Mason and Mary Grove will have expanded leadership roles on the team.
J.D. Vance, author of Hillbilly Elegy, ran the first fund but is stepping back, TechCrunch reported.
Case is the anchor investor in both funds.
For Rise of the Rest Seed Fund II, the investor list includes returning investors such as Jeff Bezos, Sara Blakely, Jim Breyer, Ray Dalio, John Doerr, Roger Ferguson, Dan Gilbert, Henry Kravis, the Koch family, Ted Leonsis, William M. Lewis, Jr., Adebayo “Bayo” Ogunlesi, David Rubenstein, Eric Schmidt, Megan Smith and Meg Whitman, as well as new investors such as Joshua Harris, Bill Haslam, James Murdoch, Kevin Plank and Intuit’s Brad Smith.
Revolution will host its second annual Rise of the Rest CEO Summit in Washington, D.C. next month, bringing together portfolio company CEOs to discuss best practices and lessons learned.