Revolution LLC, the investment firm started by America Online Inc.’s co-founder Steve Case, raised a $450 million fund to expand East Coast consumer technology companies overlooked by Silicon Valley.
Case and his partners Ted Leonsis and Donn Davis, both former AOL senior executives, are the biggest investors, with a $75 million contribution. The total raised exceeds the fund’s $400 million target, and there are 24 limited partners, including Hillman Co., Washington-based Revolution said today in a statement.
The fund, named Revolution Growth, plans to make 10 to 12 investments over five years, targeting “industries that are ripe for disruption, entrepreneurs that are passionate with a big idea, and usually having a technology angle” that changes a business model, Case said in a telephone interview. The partners will focus on growth companies in the eastern U.S., where the fund sees an investing advantage.
“There are a lot of great companies being created in Silicon Valley, but not all great companies are being created in Silicon Valley -- there’s an imbalance because most capital is focused on that market,” Case said.
The East Coast is another story, Case said. “There’s a better opportunity to find better companies with better entrepreneurs at lower valuations where we can buy larger stakes if we’re essentially focusing in areas where there’s less attention,” he said.
Revolution Growth will seek companies valued around $100 million and needing “late venture” or “speed-up” capital, Case said. The first investment will be made early next year.
Targets for financing will be “companies that already have some initial traction in terms of their product, their service, their revenue, their team, but they have a big idea and the potential to build a billion-dollar company and they need not just capital to expand but also expertise in how to grow,” Case said.
Case, Leonsis and Davis plan to back two or three companies a year to allow them to offer hands-on help, expertise and connections, Case said.
“It’s almost a throwback to the first generation of venture capital firms in the ‘60s and ‘70s,” Case said. “They typically were small funds launched by former CEOs to help the next generation of entrepreneurs, and they typically did a small number of deals and spent a lot of time with each company, nurturing them.”
LivingSocial.com, the second-largest daily-deals site, and Zipcar Inc., the car-sharing company that rents vehicles by the hour, are past investments that fit the profile, Case said. He was an early investor in both.
Today’s “difficult” environment “creates an opening, a vacuum, for entrepreneurial companies to play offense,” Case said.
“A negative sentiment in the economy, or market generally, usually leads large companies to pull back and be a little more conservative, to kind of play defense not offense, which actually creates an opening for young, disruptive companies,” Case said.