The $200M Fund You've Never Heard Of
A Midwest-based fund with Raleigh offices is looking for deals in the Triangle. Here's how to get its attention.
BY LAURA BAVERMAN
Filed Under: NEWS: Startups
Say you've got $3 million or more in revenue, you've raised a seed round and the pace of growth at your startup is accelerating. You may have few places in turn in the Triangle for growth-stage funds, but one that might not be on your radar is River Cities Capital.
With a $200 million fund closed in May—its fifth in 20 years—and two local partners, the Midwest-based fund shouldn't be so easy to overlook. River Cities was an early investor in Cary-based SciQuest, which it helped to take public in 2010, and holds stakes in two Raleigh tech companies, cloud-based marketing software startup KnowledgeTree and local television media app-maker StepLeader Digital (A spin-out of ExitEvent parent company Capitol Broadcasting). The StepLeader investment happened in 2013—one of the first four investments made out of fund five, its largest to date (Fund IV was $120 million).
River Cities now has the largest local fund actively making investments in growth-stage companies in the Triangle.
Raleigh partner Rik Vandevenne says the firm is strongly considering another Triangle-area tech investment, and that the pool of potential software and medical technology startups in town seems to be growing. It's a far cry from 2008-2012, when the software industry was dismal and venture-backed startups weren't raising funds—valuations were too low.
"There has been a big enough shift in technology with cloud-based technologies that it makes sense for businesses to spend again on IT," Vandevenne says.
So why should startups consider River Cities?
Vandevenne is quick to point out that because of its dual location in Raleigh and Cincinnati, River Cities has a network and portfolio that spans the nation, with more than 100 investments made in cities like Indianapolis, Pittsburgh, Atlanta, Scottsdale, Chicago, Nashville, Cleveland, Denver, Silicon Valley and Cincinnati. He and Raleigh partner Ed McCarthy sit on the boards of companies throughout the Southeast.
The firm also has a strong track record—40 percent of its exits have returned at least five times the capital invested.
Recent ones include the sale of Accelecare Wound Centers of Seattle in December 2013 and OrthoHelix of Akron, Ohio in 2012. In 2010, both SciQuest and software startup SPS Commerce of St. Paul, Minn. went public.
Vandevenne believes River Cities is a strong venture partner for companies that want to be capital efficient as they grow. While coastal funds may want to put $20M to $30M into a company to scale, it will invest between $4M and $15M.
"A lot of money doesn't mean it's put to work efficiently," Vandevenne says.
River Cities typically takes a board seat with its portfolio companies, and it provides a lot of support around sales and marketing. It also places top level talent to fill out a management team. The River Cities rule of thumb is that you hire a person who you want running a particular function three years from now, when the company is 10 times its existing size.
Oh, and Vandevenne is also involved in his own startup—he can see a company through a founder's eye. With an operating partner in Washington D.C., he's a co-founder and board member of PlayCall, an advertising-supported app that lets fans make and share predictions of plays in real-time during ball games. It launches in August.
River Cities' Fund V will likely invest in 20 companies over the next five or six years, with follow-on investments over its 10-year lifecycle.
Triangle startups say they need more local funding options, and here's a fund bound to help at least some of them grow and eventually exit.
Sixteen spots are left. We suggest you get on it.
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