Origin Ventures, the 22-year-old, early-stage, Chicago-based venture firm, just closed its fifth fund with $130 million in capital commitments, which makes the vehicle the firm's biggest.
It wasn't necessarily aiming to break any records, suggests managing partner Jason Heltzer, who says the firm was initially looking to raise $100 million. Still, institutional demand for a bigger piece of the private-company action is driving a lot of firms to raise ever bigger funds, and Origin wasn't immune to the interest, which grew after some recent exits, including the sale of the restaurant reservation platform Tock earlier this year for $400 million.
We emailed last night with Heltzer to learn a bit more.
TC: What was your pitch to LPs in raising this fund?
JH: We really emphasized our thesis, telling investors we were going to continue to focus on the digital native economy and invest in software and marketplace businesses -- both B2B and consumer -- solving the unique needs of millennials and Gen Z. Those generations have had three things from a very early age: the internet, a smart phone, and social media [and] the way they live, work, and play is just different than previous generations, and that breeds opportunity for startups.
Then as these generations inevitably age, they accumulate more consumer buying power and more authority in companies, naturally fueling the growth of our investments. Those generations are now more than 50% of our workforce and already command more purchasing power than other generations.
TC: This fund is quite a bit larger than your fourth fund, which closed with $80 million. Any changes to the team?
JH: Since our last fund, we've added a managing partner, Alex Meyer, and promoted Scott Stern and Prashant Shukla to partner. We also added two senior associates: Jacquie Marshall Siegmund and Angela Smith. Prashant has relocated from Chicago to Silicon Valley and Scott is relocating from Chicago to the DC Metro area, so we'll now have partners in all four time zones in the continental U.S., putting our team no more than a 90-minute flight from an elite team working on a disruptive idea.
TC: What size checks will you be writing, and in terms of ownership, how much of a company do you expect in exchange for your checks?
JH: We’ll write checks from $500,000 up to $6 million to lead seed and Series A financings. The larger fund will allow us to lead larger Series A rounds. And we target meaningful ownership with every first check, which translates to 7% to 12% in each deal in this market.
TC: Do you still think that Chicago is overlooked by coastal VCs? That's been a problem historically.
JH: No. There are too many successes in Chicago to ignore (Grubhub, Cleversafe, G2, Livongo, Cameo, Tovala, Tock, Groupon, ShipBob, and the list goes on). And most top firms have made at least one investment in the Windy City, if not many. That was before COVID, and now there are fewer barriers.
Chicago also remains the best city for venture returns because the lower cost of doing business, lower valuations, and great outcomes.
TC: What are you funding now that maybe wasn't a theme or an industry -- or not a major one -- three to five years ago?
JH: We’ve been active in the ‘workplace of the future’ for many years, but emerging themes include the creator economy, Web3, and communities.
TC: Are valuations in Chicago as crazy as elsewhere?
JH: Valuations are historically high just about everywhere, although in the Bay Area it’s magnified. The gap has narrowed in recent years, but it will remain for several reasons. Most of our investing is in other markets; we’ve invested in 18 other metropolitan areas outside of Silicon Valley.
TC: Are you price sensitive? When is a deal too rich for you?
JH: We aim to pay a fair price that is calibrated by the market. The firm has been investing in venture since 1999, and we’ve been through many up and down cycles (yes, there are down cycles in venture). Exits like Grubhub, BacklotCars, and Tock have also taught us that being in a winner when you have conviction is way more important than typical valuation fluctuations in those early rounds.
TC: How many deals is Origin doing each year?
JH: We expect to invest in 22 to24 companies out of this fund, over a three-year timeframe. To date, we’ve made 14 investments, so we're averaging about 8 new investments a year.
TC: Which of your portfolio companies has raised the most money from you?
JH: Our portfolio companies have raised over $450 million from growth investors in the last 18 months, including Cameo’s $100 million Series C (total raised: $165 million), Fountain’s Series C (total raised: $119 million),and Tovala’s $30 million Series C (total raised: $69 million). These are also our largest active bets as a firm measured by our capital invested.