Galvanize Ventures Closes $10M Seed Fund With Eye to Change Venture

7/14/14Follow @MichaelXBD

The vision behind Galvanize has always been, in the words of its co-founder and CEO Jim Deters, “f—ing audacious.” The latest evidence is the $10.2 million fund raised by Galvanize Ventures to make seed and early stage investments in startups around the country—and, in the eyes of Deters and company, put a new twist on the way venture capital firms partner with entrepreneurs.

The fund, legally known as Galvanize Venture Fund I LP, is a separate entity from Denver-based Galvanize Inc., which recently raised $18 million to turn its gSchool classes for programmers into a full-fledged edtech startup. That money also will be used to build co-working campuses in San Francisco and other cities that are hot beds for tech startups. The classes will be based at the campuses.

But Galvanize Ventures, the campuses, and the school all are part of one vision and, Deters said, will take advantage of their overlapping strengths to carve out a place in the evolving world of venture capital.

“Venture is changing. I think [raising $10.2 million] proves that with our model we came up with an innovative way to approach the venture market. Clearly, as we built more momentum, more awareness of our brand, our reach, it resonated more and more,” Deters said. “It proves that our message is resonating, and what we set out to do is actually working.”

Deters and his fellow Galvanize co-founders and Galvanize Ventures managing directors Chris Onan and Lawrence Mandes have been working on the fund since starting Galvanize in 2012, and as of last week they had made 12 investments. These include investments in Denver-based Cloud Elements, Boston-based Grove Labs, and San Francisco-based Mozio.

But when it came to discussing the details of the fund, the type of investments it would make, and how it fit into the larger Galvanize vision, Deters and company were—somewhat uncharacteristically—tight lipped. Now that the fund has closed, that’s changed.

Like most seed funds—the field is getting pretty crowded these days—Galvanize Ventures’ initial investments in a startup typically will be between $75,000 and $150,000, Onan said, and it will have the cash to invest in later rounds. The fund could invest in 30 to 50 companies, and while it is unlikely to lead many rounds, it could in special cases, he said.

The firm will not focus on a particular type of technology or take a thematic approach built around social or industry trends. That will leave it free to look “super-duper broadly” at companies, Deters said.

Galvanize Ventures will make investments all over the country and already has backed companies in Seattle, Boston, New York City, and Los Angeles.

“The Galvanize model is extensible to any community where there are tech entrepreneurs. The fund serves to look at opportunities wherever great opportunities are,” Onan said.

Given Galvanize’s influence in Colorado and its role in creating a community hub for Denver startups, it’s fair to ask whether the fund would have a Colorado focus. It won’t. That’s nothing against local startups, just a recognition that regionally focused funds have not proven to be successful.

“Geographically restricted funds are just not a good way to allocate capital,” Deters said. “We love this community, but [limiting the scope] is not a smart financial decision, in our opinion.”

Galvanize Ventures also will not give an advantage to the companies that have space in the Galvanize co-working campuses in Denver, San Francisco, Boulder, CO, or other future sites when making deals, Deters said.

When laying out the details of the fund, Deters and Onan acknowledge that Galvanize Ventures looks a lot like a typical seed fund. The core of their pitch to entrepreneurs—that Galvanize can use its networks to help startups make connections and its experience to help solve problems—sounds familiar.

Onan said they know they’ll have to compete to be a part of the best deals.

“For an entrepreneur that’s raising capital, if they’re on to something and the business is staring to grow, they’re picking their investors,” he said.

That’s why the new fund will emphasize parts of its vision that it says are unique. That starts with the size of Galvanize’s network. With 35 employees, dozens of startups using its spaces, and hundreds of people passing through Galvanize locations each month for events it hosts, Galvanize is living up to its goal of becoming a nationwide “super connector,” Onan said.

That gives Galvanize community members and Galvanize Ventures’ portfolio companies access to a network that extends well beyond the managing directors’ personal networks, Deters said.

“Someone that’s just a member here has access to not just my network, but the extensive network of everyone we’re touching within this community and beyond,” he said.

That network should only grow over time as Galvanize expands into more cities and builds its reputation, Onan said.

The team also envisions creating a built-in talent pipeline through the gSchools from which portfolio companies can pick the best and brightest students.

“Every tech company that’s growing probably needs talent way more than they need capital. Capital is the easy problem to solve, tech talent is the harder problem to solve. I think we are doing something to make that easier for entrepreneurs,” Onan said.

Onan and Deters said the venture fund will benefit from Galvanize’s reach, which should support deal flow. In the case of community members, the directors will be able to really get to know entrepreneurs they might invest in and see how they work before making a deal.

The overall vision seems to be resonating with Galvanize Ventures’ own investors, especially because the Denver campus is an example of the vision coming to life.

“The work we’ve been doing over the past year and a half is making sense to people. They see the model is a little different and fits into the fabric of the tech community in a thoughtful, authentic way,” Onan said.

Deters said he knew from the start he might have a tough sell getting investors to buy into his vision, especially because he’d never been a venture capitalist. He was a successful entrepreneur and executive who helped Ascendant Technology grow into a $100 million company that Avnet (NYSE: AVT) bought in 2012 for an undisclosed price. He’s also made some angel investments, but he knew he didn’t have the track record limited partners would want to see or know the finer points of running a fund.

That’s why he recruited Onan before Galvanize launched in 2012. Onan was a managing director of Appian Ventures, a Denver-based firm that made early stage investments predominately in Colorado-based companies.

“I specifically went out to find somebody that I thought was visionary that wanted to be involved in changing venture, but also had experience with the nuts and bolts of running a venture capital firm,” Deters said. “I’ve never run an institutional fund. Adding that level of depth and expertise and someone as skilled and innovative as Chris was a huge win.”

Appian Ventures raised an $80 million fund in 2004 but was among the handful of Colorado-based VC firms that were unable to raise additional funds following the 2008 recession. The firm did back some winners that had successful exits, including LeftHand Networks, which Hewlett Packard bought for $360 million in 2008, and Collective Intellect, which Oracle bought in 2012 for an undisclosed price. It also invested in Ping Identity, a Denver company many locals believe is on track for an IPO in the next year or two.

Onan said the lessons learned at Appian Ventures, and from seeing more than a thousand deals over the past 15 years, will be useful as Galvanize Ventures tries to pick winners and manage its funds.

Galvanize Ventures also has two directors with experience in the VC world. Nick Wyman came to the firm from Boulder-based Foundry Group, where he ran special projects for the firm. Kate Shillo, who will be based in New York City, was the director of operations for Lerer Ventures, the New York City-based seed fund.

While the team is building Galvanize Ventures for the long haul, it remains to be seen whether it will evolve into a larger fund. Deters said that decision will come in time, ideally after they have shown their investing acumen lives up to their ambition.

Michael Davidson is the editor of Xconomy Boulder/Denver. He covers startups, venture capital, clean tech, energy, aerospace, telecoms, and whatever else happens above 5,280 feet. Contact him at mdavidson@xconomy.com. Follow @MichaelXBD

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