Los Angeles-based venture capital firm CrossCut Ventures has had plenty of modest hits since being founded in 2008, including Lettuce Apps (sold to Intuit) and GradientX (sold to Amobee). What it hasn’t had, however, is enough money to lead certain deals or to maintain its pro rata position in promising portfolio companies — having raised just $5 million for its first fund and $12 million for its second fund.
That should no longer be a problem, as CrossCut this morning is announcing that it has raised $75 million for its third fund. The increase was driven by CrossCut’s decision to tap the institutional investor community for the first time, securing investors like Top Tier Capital Partners and The James Irvine Foundation.
CrossCut plans to maintain its focus on early-stage tech companies around Los Angeles, while sometimes looking elsewhere (read: Bay Area) for select later-stage opportunities.
“What we promised our LPs was that nothing would change except the size of the initial check and our ability to actually lead deals,including taking board seats,” explains Brian Garrett, a CrossCut co-founder and managing directors. “We were just trying to do it with too little capital before. The truth is that for our sort of strategy — concentrated ownership, not spray and pray — a fund of between $50 million and $80 million is the right size given the maturity of this ecosystem and the way we want to construct a portfolio of 25 to 28 companies.”
The only question now is if CrossCut can maintain its historical performance with the much larger fund size. According to a briefing document shared by the firm, CrossCut’s first fund has a 4.4x multiple with 2x realized to date, and a net internal rate of return (IRR) of 34.1%. That’s on 18 investments, of which over half are expected to have positive outcomes. The firm’s second fund has a 1.8x multiple and a 40% net IRR.
As part of the new fund announcement, CrossCut also said that gaming veteran Clinton Foy has been promoted from venture partner to managing director. That gives the firm five full-time investment staffers, including Garrett, Foy, Brett Brewer (co-founder of Intermix Media/MySpace), Rick Smith (ex Palomar Ventures) and new associate Joe Guzel (ex-Intuit corp dev).
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