This top Silicon Valley venture firm just made a contrarian move with its newest fund – TechCrunch

In Silicon Valley, venture firms with a track record of success find themselves awash in money thanks to the growing number of institutions that want to invest more of their capital in tech. In March, an SEC filing showed that General Catalyst had closed a $1.375 billion fund, the biggest vehicle in its 18-year history. Battery Ventures also closed on two funds earlier this year that are the 35-year-old firm’s biggest to date. Sequoia Capital, meanwhile, is reportedly out raising $12 billion across a series of funds, a move that’s unprecedented for the firm — or any U.S.-based venture firm, for that matter.

Fifteen-year-old Emergence Capital could easily follow the same path. Emergence funds early stage ventures that are focused on enterprise and SaaS applications, and it does this very well. Its bets include the storage company Box (now public), the social networking company Yammer (sold for $1.2 billion to Microsoft in 2012), and Veeva Systems, the company that’s generally known for its customer relations software for the life sciences and pharmaceutical industries, though envious investors see Veeva as the company that produced a more than 300x return for Emergence when it went public in 2013. (Emergence had invested just $6.5 million in the outfit and owned 31 percent of it going into the IPO. It was also Veeva’s sole venture backer.)

Still, when it came time to raise its fifth fund, Emergence did not raise a billion-dollar fund, as it surely could have. Instead, the San Mateo, Ca., firm, which closed its fourth fund with $335 million in 2015, opted to increase the fund by 30 percent, closing its new vehicle this past Friday with $435 million.

We talked the other day with firm cofounder Jason Green, who is one of four general partners, about the firm’s trajectory. Specifically, we asked why — like almost every other firm in Silicon Valley — it didn’t close its newest fund with exponentially more in capital commitments than its last fund. The answer, said Green: “Our sweet spot is on early market fit, with a core team we can work around.” Because that hasn’t changed, neither has the size of the funds it raises, he said.

There have been some changes. In 2016, Emergence promoted Joe Floyd to partner three years after Floyd had joined the firm from Kaufman Fellows, which is a two-year development program for venture capitalists. As notably, cofounder Brian Jacobs will not be helping to invest this new fund. Asked if Jacobs is leaving to do crypto investing (a popular move at the moment), Green said Jacobs is moving “toward more philanthropic activities” instead.

Emergence, whose first investment was in Salesforce and whose other wins include the sale of ServiceMax to GE for $915 million in 2016 and Intacct’s sale to Sage Group for $850 million last year, only invests in five to seven new companies each year. Before we let Green go, we asked how the firm decides which handful of companies to pursue at any one time.

He said that Emergence is very “thematic oriented” and that it picks a couple of themes for every new fund then tries to find the best companies and founders within those themes. Though it has been SaaS and cloud and horizontal applications and industries from the outset, Green says that going forward, it plans to focus on a couple of related but more specific areas. The first of these he called “coaching networks,” which is another way of describing machine learning applied to the enterprise. Seattle-based Textio, for example, an Emergence portfolio company, uses AI-powered tools to augment business writing. Another portfolio company, Chorus, analyzes voice recordings of sales interactions to give sales teams real-time feedback about what’s working or not. Green says he sees these as “coaching networks” because they’re making people better at their jobs, rather than aiming to replace them.

Emergence is also focusing on the deskless workforce, meaning the 80 percent of the global workforce that doesn’t sit in front of a desk. It’s not a new trend, concedes Green, but he calls it “early innings,” with related technologies just “starting to infuse the operations of teams around the globe.” (An early investment in the fast-growing video conferencing company Zoom could probably be tucked into this category.)

Green dodged a question about what size checks the firm likes to write. He did say that like most traditional VCs, the firm looks to own 20 percent or more of the companies it backs, and it typically supports companies at the “Series A, all the way through” to an eventual exit.

Asked if Emergence allowed any new investors into its newest fund, Green said the firm “hand selected a handful of new LPs who we felt strongly were going to use the returns for good — foundations and endowments that we feel are doing really great work.”

It has “become more rare,” not raising a giant fund in today’s climate, Green said on our call. “It does take a lot of restraint. It’s very easy right now to raise lots of capital and spread your wings, and I’m proud that we’ve been able to maintain our focus and discipline.”

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