More Great News for #LATech — Crosscut Ventures Raises $75 Million Fund
Crosscut Ventures has just announced their 3rd fund and clocking in at $75 million, which will be focused heavily on Los Angeles — FTW. A seed fund this size (and with increasing numbers of venture funds being raised by LA-based VC’s) has overcome a decade-long resistance and belief that you could only build great tech companies in Silicon Valley.
What you may not know is that the story of Crosscut itself is heavily correlated with that struggle for LA to have legitimacy as a national tech hub, which is now the fastest growing (and 3rd largest) in the US. Like many entrepreneurs, the founders of Crosscut quit their well-paid jobs in the belief that LA’s moment was about to arrive and they spent years on low (sometimes no) salaries to prove it. Today is a huge validation for Crosscut and continued faith that LPs that any national VC would covet are placing on the LA market and two great institutions — The James Irvine Foundation and Top Tier Capital — have underscored this by backing Crosscut.
LA has grown up a lot over the past 5 years. This week Michael Dubin’s startup Dollar Shave Club announced a $75 million funding round at a rumored $650 million valuation. And this is following mega financings at Honest Company ($75 million), JustFab ($85 million), Victorious ($25 million) as well as the obviously known standouts like Tinder and SnapChat.
This is not your dad’s LA. Our ecosystem is operating at a whole new level.
And some of the people in venture who have had the longest ringside seat to our ecosystem are the founders of Crosscut Capital. The founders — Brian Garrett and Rick Smith — were both VCs long before I arrived in this town. Brian grew up locally and after he was graduated from Stanford (engineering) and Stanford MBA he went to work at a firm called Palomar Ventures. Rick was a partner there having previously been a Managing Director and founding member of Sun America’s venture capital practice and having been graduated from Harvard Law School.
As you can tell, they sound like the prototypical, Silicon Valley, VC backgrounds. But before it was popular en masse to do so they quit the cozy confines of a big VC firm and set out on their own along with the third co-founder who is one of LA’s more experienced Internet operators — Brett Brewer (co-founder of team that launched MySpace, president at AdKnowledge). The threesome has the perfect mixture of backgrounds to launch a seed fund.
They had only one problem. There were almost no seed funds in LA (let alone Silicon Valley) and it took some persuading to get investors to believe in LA venture. But that was so 2008. Their first fund was mostly their own money but provided the necessary capital to fund a series of LA’s startup successes. This includes GumGum where they led the seed round and it was only the second VC deal I had ever done in 2009. GumGum recently announced a $26 million round led by Morgan Stanley and is on a $75 million run rate. This was the first of several deals we did with Crosscut.
Crosscut raised a second fund in 2012 and this time brought in a significant amount of external capital. They backed startups such as JustFab, BlackTux, Lettuce (sold to Intuit) and … Superevil Mega Corp, the best named startup company I know.
More recently Crosscut added a fourth partner — Clinton Foy — who was the COO of a $2 billion video game business — to focus on investments in the gaming sector, which has always been a strength for Los Angeles.
But being able to raise a $75 million seed fund is a testament to the success of their investments before the LA ecosystem was as thriving as it is today. They were some of the earliest people I met when I moved to Los Angeles and moved into VC and they have been some of the most supportive co-investors we know. Last year we announced our own new fund — $280 million — and even though we do some seed deals we’re really more of an A-round investment shop.
Having a slightly earlier-stage firm like Crosscut is a huge benefit to us and a huge asset for all of the LA technology ecosystem. It will help more early-stage entrepreneurs get funded locally and not move out of our great ecosystem thus avoiding the silent killers.
People often talk about why entrepreneurs should be the only real focus in the public eye but I’m not one of those that believes this narrative — in part it’s because I know the struggle that emerging VCs have in establishing themselves. I see similar sacrifices in time away from families, I see VCs on late-night conference calls or red-eyes back East. I see emerging VCs putting their personal reputations on the line to try knowing that if they fail to raise a fund they will feel as stupid as an entrepreneur who fails. And I know that early-stage VCs are the people who have the strongest beliefs in the entrepreneurs with the wildest ideas and VCs will sometimes back you even in your darkest hours.
These are the stories of the people I know very well at Crosscut and frankly at many firms you know dating back to even the birth of struggling entrepreneurial VCs like Jeff Clavier who started with $1 million of his own money and the gentlemen at True Ventures who started with a $12 million fund and helped create the seed fund movement. This week they both got to ring in the stock market bell with FitBit — truly a story of early-stage VCs taking a bet on wildly ambitious entrepreneurs in a category many didn’t believe in.
Crosscut has been a large part of this movement in LA. And may we see more funds raised in our town. Together we are all stronger. Few will know the kinds of risks you guys took in charting your own course but I had a ringside seat. Few will know the struggles similar to the entrepreneurial journey that you took through the lean years and few will therefore be as proud as I am to toast your amazing accomplishment. There are many other funds now forming in our great city, but I don’t want to mention them all here because today is your day.
Congratulations, gentlemen.
