New VC Firms Are a Rare Sighting. This One Did It by Going Small

  • Clear Ventures raised $120 million for its first fund
  • Firm told investors it would make small bets on tech companies

Clear Ventures has raised $120 million for its first fund, joining a small class of new venture capital firms that have managed to find backers this year.

Just 14 new venture firms raised funds in the first quarter of 2016, a 33 percent decrease from the same period last year, according to the National Venture Capital Association, a trade group. Concerns of over-inflated startup valuations and the lack of initial public offerings have caused some investors to sour on venture capital.

Deep-pocketed mutual-fund and hedge-fund investors helped drive a surge in capital to the private markets in recent years, followed by a recent contraction since they’ve begun to pull back.

Clear Ventures sold its investors on the promise of identifying small companies that could yield huge returns, instead of chasing billion-dollar unicorns, said Rajeev Madhavan, a founder of the firm. Clear Ventures is looking to back four to six technology companies in Silicon Valley each year and invest an average of $3 million over each startup’s lifetime. “We are the exact opposite of a unicorn hedge fund,” he said.

Madhavan, a longtime startup investor and co-founder of two design firms in the Valley, started Clear Ventures in 2014 with Christopher Rust, a veteran VC. Rust was a partner at Sequoia Capital in the late 1990s before joining U.S. Venture Partners in 2004. He said he helped make an early, lucrative bet on GoPro Inc.

The pair said they collected data on the 65 startups they’ve backed during their investing careers and pitched prospective investors on the findings. They declined to identify the fund’s backers. During the past two years, Rust and Madhavan said they’ve met with 800 startups and backed eight, including cybersecurity company Vera Security Inc. and e-commerce startup Reflektion Inc.

“We are not momentum investors,” said Rust. “We invest in companies that can get there and succeed without a $500 million raise.”

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