Cowboy Ventures goes bigger with $260M across two new funds, including an opportunity fund

Cowboy Ventures goes bigger with $260M across two new funds, including an opportunity fund

In a sign that the early-stage venture market is as strong as ever, Cowboy Ventures announced today that it has closed on $260 million across two new funds. That includes a $140 million main fund, as well as a $120 million opportunity fund that will focus on follow-on investments.

This is the first time the 8-year-old firm has raised an opportunity fund. And it’s a sign that co-founder Aileen Lee, who launched the firm with a focus on consumer Internet and enterprise software startups, is looking to deepen her firm’s portfolio companies.

“One of the things we’ve been hearing from our portfolio companies is that they want help with growth funding and they don’t necessarily want to go out and raise a big growth round from a growth-stage venture firm,” Lee said in an interview with Crunchbase News. “So we thought, let’s raise an opportunity fund to write those follow-on checks.”

So far, the firm has invested out of its main fund in 55 companies, including 2018 IPOs like Affirm and PagerDuty. The new opportunity fund will allow the firm to double down on its best performers with follow-on investments. It will also give Lee and her team more flexibility to write bigger checks, she said.

“We’re really looking to back category-defining companies that have the potential to be big public companies or big [acquisition] exits,” Lee said. “There are not that many of those, so we’re trying to focus on writing bigger checks to those companies when we see them.”

The firm’s new main fund is slightly bigger than its $100 million third fund, which closed in early 2017. At the time, Lee said that her firm would likely “stay around this size” going forward. But the strong fundraising environment, as well as the firm’s strong performance, led to the decision to go bigger with the new funds, she said.

“We’re fortunate that the fundraising environment is quite strong,” Lee said. “We had a lot of interest from returning LPs [limited partners] and new LPs. And we’ve had a really good couple of years in terms of investment performance. So it was just a confluence of events that led us to decide to upsize.”

The new funds bring the firm’s total assets under management to $660 million. Lee said she expects the firm to make 15 to 20 new investments per year out of the main fund, and 5 to 10 out of the opportunity fund.

Expect more megadeals

One effect of the new funds will be larger deal sizes. Lee said the firm’s typical investment is in the $2 million to $5 million range. But with the new opportunity fund, the firm will be able to write checks of up to $15 million per company.

“You’ll see more of our companies raising larger rounds with us as a lead, or co-leading,” Lee said. “We think that’s helpful for the entrepreneurs, because it just gives them more Options and more flexibility in how they want to grow their companies.”

One example of a recent large deal from the firm is its $11 million investment in Casper, the direct-to-consumer mattress startup. Lee said the firm has been an early investor in a number of other “megadeals” in the space, including Everlane and Glossier.

“We were really excited to do that deal, because it checked a lot of boxes for us in terms of backing an incredible team led by [co-founder and CEO] Philip Krim, who we’ve known for a long time, in a very large and growing market,” Lee said. “And it’s a category where we feel like we have some expertise, given our investments in Everlane and Glossier and a few other companies.”

A focus on consumer and enterprise

Lee said the new funds will allow the firm to continue its focus on consumer and enterprise software startups. She said the firm has been seeing a lot of interest from consumer companies in recent months, as the Direct-to-Consumer (DTC) market continues to heat up.

“We’re seeing a lot of new brands being created, a lot of existing brands going direct-to-consumer,” Lee said. “So that’s been a really big focus for us.”

On the enterprise side, Lee said the firm is seeing a lot of opportunity in the “digital transformation” of traditional businesses. She cited the example of Databricks, a data analytics startup that recently raised a $250 million growth round from Andreessen Horowitz.

“ Databricks is a great example of a company that’s helping large enterprises with their digital transformation, by making it much easier for them to do data analytics and machine learning at scale,” Lee said. “So that’s an area that we’re very excited about.”

Other companies in the firm’s portfolio that are focused on enterprise software include New Relic and Zuora. Lee said the firm is also excited about the “prosumer” market, where businesses and individual consumers are using the same products and services.

“We’re really interested in companies that are serving both businesses and consumers, because we think that’s where a lot of the growth is going to be,” Lee said. “So companies like Slack and 23andMe are two examples of companies that we’ve backed that are serving both businesses and consumers.”

Aleezay Ahmad

Aleezay Ahmad is a freelance writer and content creator. She writes on a variety of topics, including business, startups, and technology. You can follow her on Twitter @AleezayAhmad.

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