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Executives, Networking Helped Make 2015 a Watershed Year for VC Funding

From the Indianapolis Business Journal:

Back in 2004, ExactTarget CEO Scott Dorsey was looking to raise $10 million in venture funding for his 4-year-old email marketing startup. Dorsey reached out to a variety of firms for the round, including Silicon Valley-based Emergence Capital Partners.

The two parties tried, but weren’t able to reach an agreement for that round. They made a run at working together in 2006 and in 2009, too, and on both occasions nothing materialized. Still, Dorsey kept in contact with Emergence, one of the leading business-software venture firms in the world.

The failed talks ultimately paid off. In late 2014, not long after stepping down from his ExactTarget post, Dorsey began to hone in on what he wanted to devote the next chapter of his life to—an operation that helps build and fund software companies. He then tapped Emergence—not for money, but for feedback on the relatively unique idea—and a few months later, Emergence helped anchor a $35 million investment in what came to be known as High Alpha.

“We said, ‘We think there’s a chance to build next-generation software companies if we bring the right level of capital, ideation and expertise into the mix,’” Dorsey said, recalling his conversation with Emergence and other investors about Indianapolis-based High Alpha. “And in the course of getting their feedback on the model, they kind of raised their hands and said, ‘Boy, we’d love to be a part of it.’”

The High Alpha investment was among the biggest venture investments in Indiana in recent years—as well as a standout financing event in a busy 2015 that saw more than $100 million pumped into high-growth Indiana companies.

Many startups, here and elsewhere, secure such funding by touting their market traction, revenue growth and other statistics, all in an effort to prove to investors that they’re good bets. However, a look behind the scenes of High Alpha and three other big venture deals last year suggests that, oftentimes, landing capital has more to do with relationships and luck than with metrics.

High Alpha

About a year after Salesforce purchased ExactTarget for $2.5 billion in July 2013, Dorsey stepped down as CEO. At the time, he had no clue that he would later secure $35 million for High Alpha. But his bricklaying started early.

One key meeting took place in late 2014 at an American bistro restaurant.

There, Dorsey met with Emergence Capital founding partner Gordon Ritter, who was trying to coax Dorsey to join his firm. Dorsey respectfully declined, telling Ritter he preferred to stay in Indiana and build something there.

“He wanted to try to find a way to do what he loved, which was starting and nurturing companies and staying in Indy to do that,” Ritter said. “And coming out to the West Coast and becoming a venture capitalist was not his interest.”

Around that time, Dorsey was approached by a trio of investors behind Indianapolis-based Gravity Ventures—Kristian Andersen, Mike Fitzgerald and Eric Tobias—all of whom had helped launch software startups, including TinderBox and Lesson.ly. The three had been bouncing around their ideas for an outfit that creates companies and has cash on hand to fund growth, and they asked Dorsey to help.

“They wanted to dedicate the next chapter of their careers to building an organization that became proficient at matchmaking new ideas with talent and putting the right amount of capital behind it,” Dorsey said. “So they reached out to me … and I just fell in love with the idea.”

As the idea developed, Dorsey tapped the expertise of Ritter and partners he knew at Greenspring Associates, a Maryland-based venture firm that previously invested in ExactTarget. Emergence had invested in a similar model in South America, which proved to be a useful reference for High Alpha’s operational arm, known as High Alpha Studio. Greenspring offered valuable insights for the funding arm, High Alpha Capital, given its experience investing in a variety of venture funds.

Fitzgerald, one of the founding partners, said, “The combination of our operating experience and their venture experience produced some really rich conversations that helped shape the High Alpha model.”

The building of High Alpha began in earnest around the start of 2015. It officially launched in April. Emergence’s investment was mainly for the operational arm; Greenspring was responsible for a sizable chunk of the funding for the venture capital arm.

In addition to Emergence and Greenspring, Dorsey helped rally other investors around the idea, including more than 50 angel investors from around the country and Hyde Park Venture Partners, based in Chicago.

TinderBox

TinderBox probably had one of the most surprising fundraising cycles last year.

Part of its $7.4 million round came from an esteemed coastal venture capital firm that TinderBox didn’t even approach.

The firm was Greycroft Partners, whose past portfolio companies include The Huffington Post, the news aggregator acquired by AOL Inc. in 2011, and the peer-to-peer payments app Venmo, which was acquired by Braintree in 2012.

Last summer, executives at one of Greycroft’s portfolio companies, EventBoard, a maker of employee-meeting software, were giving an update and mentioned TinderBox, an Indianapolis-based maker of sales-productivity software. The reference piqued the interest of Greycroft officers, who decided to follow up.

“They were fired up about [TinderBox],” said Mark Terbeek, a Greycroft partner who’s based in Los Angeles. “So at the meeting, I decided to jot that down and go check out that company.”

Terbeek said his firm did its research, then contacted TinderBox CEO Dustin Sapp. More due diligence followed, including surveys of TinderBox customers, and Greycroft officers flew out to Indianapolis a few times to meet the team.

“I didn’t know Mark [Terbeek] before one of his associates reached out to us, but we very quickly got to know each other,” Sapp said. “He has Indiana roots, he’s a DePauw grad, and likes the region quite a bit.”

At the time, TinderBox was in the midst of a so-called insider round, which involves existing investors. TinderBox raised $2 million from those investors, but board members and executives decided to contact a short list of outside venture firms, to broaden the round.

“Interestingly, Greycroft wasn’t initially on our short list,” said Don Aquilano, TinderBox board member and managing director at Carmel-based Allos Ventures. “They actually reached out to Allos for an introduction to the company.”

The process moved quickly, Aquilano said, because Greycroft appeared sold on TinderBox from its own research. He said new investors bring to the table not only another wallet that can be tapped for future rounds, but also “another set of experiences and another Rolodex.”

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