After 'Very Difficult' Fundraising, March Capital Oversubscribes its New Fund to Double Down on Enterprise
The new year is continuing where 2020 left off, with more L.A. venture firms raising big funds.
Santa Monica-based March Capital announced Thursday it has closed its third fund, a $450 million vehicle to double down on the firm's focus on enterprise software companies in artificial intelligence, industrial technology, cybersecurity, financial technology and cloud infrastructure.
After being spread too thin in Fund I, the firm has been using a higher conviction model to focus on bigger investments in fewer startups.
"We tried to do too much in Fund I," said founder and Managing Partner Jamie Montgomery, who started the firm with Jim Armstrong, Gregory Milken and Sumant Mandal in 2014. "We simplified our strategy in Fund II. We raised the quality bar and only partner with entrepreneurs that are unafraid to tackle large markets and we doubled-down with conviction in our portfolio companies that were breaking out."
Already four of the firm's investments in Fund III are follow-on capital to existing portfolio companies, including CarTrade, an online auto classifieds platform, Uniphore, an AI customer service solution, and ASAPP, a conversational AI technology company.
Though the fund ended up being oversubscribed, raising nearly half a billion dollars during the pandemic was no easy task.
"It was very difficult," Montgomery said. "Many investors want to meet in person and many investors are concerned about valuations and about the inherent volatility in the economy."
Montgomery says the firm benefited from its previous track record, especially highly lucrative early bets it made on the cybersecurity company CrowdStrike.
As dot.LA reported last month, March Capital invested $26.5 million in the company's Series D round in 2017 at a post money valuation of $1.02 billion and another $39.7 million in the Series E financing in 2018 at a $3.35 billion post money valuation. When CrowdStrike went public in 2019 at a $6.69 billion valuation, March Capital not only held onto most of its shares, but added to its stake. After the run up in CrowdStrike's stock price, March Capital has reaped a return on paper of over $1 billion.
"We are fortunate that March Capital I is a top-quartile performing fund and March Capital II is a top-decile performing fund," Montgomery said.
But even with those hits, Montgomery still had to convince investors to come aboard a third time.
"We had done a global tour in late 2019 and early 2020 and hosted hundreds of investors at events in New York, London, Zurich, Melbourne and Los Angeles before COVID hit," Montgomery said. We then launched a virtual series in April tailored for our investors. We suspended fundraising in March and restarted in July. We had literally hundreds of virtual meetings during the last six months of 2020."
LPs in Fund III include local and global family offices as well as several sovereign wealth funds.
"We have 100% retention of investors from Fund II to Fund III and we added a number of new relationships in Europe, Australia and other markets," Montgomery said. "It is important to keep your investors happy but also refresh them over time."
Two-time entrepreneur Wes Nichols and India-based Rajan Mehra have come aboard as new partners for Fund III. They join existing partner Jed Leidheiser and co-managing partner Milken, who leads the March Gaming investment fund.
March Capital also announced the creation of the March Capital Foundation, which will allocate 1% of the firm's profit to address homelessness, hunger and community health.