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Purple Arch Ventures is a Northwestern alum fund investing in Northwestern alum-led companies
Venture capital used to be a cottage industry, with very few investing in tomorrow's products and services. Oh how times have changed. While there are more startups than ever, there's also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We're highlighting key members of the community to find out.
Previously, Beazley founded Synergy Financial, a private capital and consulting firm that provides entrepreneurs, private equity professionals, and family offices with financial and business solutions. He started his investment career as a professional advisor where he held series 7 and 66 licenses and managed millions in assets for his clients. He continues to hold series 82 and 63 registered representative licenses, and also serves on a number of growth-stage company boards.
Beazley has an undergraduate and graduate degree from Northwestern University. He played for the two-time Big Ten Championship Northwestern Wildcats Football Team and continues to stay active with the university. He currently serves on the NUvention and Kellogg Entrepreneurial Center Advisory Boards, as well as career mentoring for graduating players.
VatorNews: What is your investment philosophy or methodology?
David Beazley: Even as we live in the era of big data and predictive analytics, nothing about venture capital is predictive or persistent. Still, as VCs, we do our best to recognize patterns and trends. Personally, I have been a lifelong student of markets and strive to be an expert generalist. All that being said, my best investments have been in companies where the founders have had a distinct competitive advantage in customer acquisition and an almost obsessive focus on refining their value proposition to retain those customers.
Purple Arch Ventures is part of a family of funds from the Alumni Ventures Group focused on top-tier universities. Purple Arch raises its money from accredited Northwestern University (NU) alums to invest in NU alum-led companies.
Two key elements are needed in order for us to make an investment: one, a meaningful touchpoint to Northwestern, and two, a professional, smart-money lead investor who will set the market terms, take the board seat, perform the deep-dive due diligence and advance the company initiatives with social and intellectual capital to help produce positive outcomes for us. The fund is private, for-profit, and not affiliated with the university.
VN: What do you like to invest in? What are your categories of interest?
DB: We are stage, industry and geography agnostic. We like investing in not only industry disruption, but also industry innovation, which fosters a lot of M&A activity and potential liquidity with significant upside for our capital. There are lots of categories we are tracking, including cyber security, marketplaces, cloud services, fin tech, ag tech, ed tech, B2B SaaS, AI/machine learning, mobility, e-commerce, social commerce, AR/VR, innovative CPG, life sciences, biotech and healthcare IT to name a few. In other words, we like investing in the future.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
DB: We are still very early in the life cycle of our inaugural fund, but I can truly say we love all of our investments. Each company is like a favorite child you want to raise to be a contributing member to society. Something that fosters change for the better. We have invested in things that save customers time, money and give them new and interesting ideas. We have found products and services that deliver a sticky value proposition and possibly a network effect. We like disruption, but market adoption takes a while, so we equally like innovation where companies look to improve upon existing products and services.
Two examples: a nanotech therapeutics company developing a new class of immunomodulatory and gene silencing drugs that enhance efficacy and safety for the patient. Second, an industrial IoT company that can turn an SMB business model from CapEx into OpEx. Both have a chance to be category leaders, and both can change the world for the better.
VN: What do you look for in companies that you put money in? What are the most important qualities?
DB: Once we see product-market fit, we look for the three Ts: Team, Timing and Tenacity, and seek out companies that can become their category leader.
On the team side, we look for experienced entrepreneurs--those who have built successful businesses in the past and know how to build shareholder value over time. We are also evaluating the leadership, charisma, magnetism and gravitas of the founder, and who they have been able to draw into their opportunity—including the quality of their board, technical team, finance team, marketing, sales and operations.
We also look for the timing of value delivery. We determine if it is too early, too late or just right for the market served (i.e. ,“The Goldilocks Zone”). The sharing economy that produced AirBnB and Uber are two great examples of businesses that came out when people needed to make a little extra money and had extra resources and capacity they could share. Both were two-sided markets where the chicken and the egg came together with the velocity needed to scale quickly and produced the network effect where every user improved the experience for those that followed.
We also need to see grit and the tenacity of tactical execution. Companies are going to encounter countless obstacles to their success. We look for those that know how to overcome adversity and solve hard problems, which in turn creates value for us as shareholders.
VN: What kind of traction do you look for in your startups? And can you be specific? Are you looking for a number of customers or order volume?
DB: We seek companies that thoroughly understand their market and how to capture each segment efficiently. Depending on the stage of the company, we are looking for a clear path to a math equation, or a point where we know if we invest one dollar into sales and marketing, we see five dollars of profit result.
VN: How long does it take before you meet a startup and make an investment and how do you conduct your due diligence?
DB: Because we are a co-invest model, we have the advantage of receiving the primary diligence from the lead investor, who has likely spent three-six months researching and vetting the company. For us, we can set up an investment committee, review a data room and make an investment in 10 business days if necessary. That is part of our value proposition to our companies: a smooth, efficient and transparent process, in addition to a frictionless closing.
VN: These days a seed round is yesterday's Series A, meaning today a company raises a $3M seed and no one blinks. But 10 years ago, $3M was a Series A. How has that changed where a company needs to be to get their Series A round?
DB: Geographies play a role in what makes an average Series A. In the Midwest, $3 million can still be a Series A.
For us, we can assess a company in a seed round based on the quality and potential of their idea and the caliber of the team. For a Series A, they need to have a perfected product and a clear path to penetrate the market. For a Series B, they now need to have a company with separate functions for sales, marketing, operations, finance and corporate governance and a culture of accountability from the executives. For a Series C, we are investing in a business model. The engine is built and our capital will fuel massive market capture and profitability.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
DB: I was lucky enough to go to NU on a football scholarship. I played during our Back-to-Back Big 10 Championship years in the mid 1990s. After grad school at NU, I was initially an entrepreneur who broke into finance first as a professional money manager, then in 2002, started my own private capital and consulting company called Synergy Financial Partners.
While running Synergy as its founding partner, I played a leading role in virtually every aspect of the venture capital investment cycle - structuring transactions as a fundless sponsor, improving operations as a consultant, leading management teams as a CEO, evaluating opportunities as a direct investor and family office advisor, and selling companies as a licensed business broker. Over the last 15 years, I have acquired a very useful combination of operational and investment experience allowing me to drive real value creation in complex venture portfolios, especially growth-stage, tech-enabled businesses, e-commerce, data-driven companies and IoT solutions.
VN: What do you like best about being a VC? What makes you excited?
DB: I love helping the next generation of entrepreneurs be successful. To me, it’s like facilitating a dream for someone who wants to change the world. In addition, I have a lifelong love of learning and get to read about emerging technology every day. I also get to see what’s coming in the future, as well as glean knowledge and insight from some of the smartest, most driven people in the world.
VN: What is the size of your current fund?
DB: We have a $5 million first fund. Our goal in the future is to double that and deploy around $10 million into venture every year hereafter.
VN: What is the investment range?
DB: We invest between $200,000 and $2 million per deal. On the larger side, we syndicate to our sister funds at Alumni Ventures Group and sometimes directly to our limited partners in each fund.
VN: Is there a typical percent that you want of a round? For instance, do you need to get 20% or 30% of a round?
DB: We target about 10 percent of a round on average. For much larger rounds, that amount might be significantly lower.
VN: Where is the firm currently in the investing cycle of its current fund?
DB: We are about halfway through our first fund. We’ve made 10 investments, with the intention to do 10-12 more before we start our new fund in May 2018.
VN: What percentage of your fund is set aside for follow-on capital?
DB: We currently have 10 percent set aside for follow-on rounds.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
DB: As I mentioned before, we are stage, industry and geography agnostic. We intend to do a couple of deals in Seed and a couple of deals that look more like private equity vs. growth capital, but the bulk of our investments will be in Series A-C.
VN: In a typical year, how many companies do you invest in?
DB: We make 15 to 25 investments through our annual funds.
VN: Is there anything else you think I should know about you or the firm?
DB: I have a rockstar VP, Wayne Moore, who works with me full time (he has an MBA from Kellogg and also bleeds purple). We comprise the daily deal team. In addition, we have an Investment Committee that help advise us on our portfolio. They are all LPs in our fund, who collectively have more than 200 years of professional investment experience and help us hedge against adverse selection.
Another important factor in our success has been our tremendously supportive network of alums, starting with our investors. This group, which now numbers 5,000, have helped us socialize the fund, refer deals, and consult as needed. They constantly funnel a large number of quality deals to us for evaluation, supplementing our own deal team sourcing.
In fact, we’re very pleased with deal flow. We look at close to 30 deals per month, take two or three to the Investment Committee and ultimately invest in one to two every month. More broadly, our goal at Purple Arch is to invest $100 million into venture capital over the next 10 years and manage a portfolio of 200-250 great companies led by NU-Alums.
I invite anyone interested in our progress to check out our portfolio, team, and latest fundraises at www.purplearchventures.com.
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