Battery Ventures Has An Unconventional Playbook For Its $3.8 Billion In New Funds

As Battery Ventures closed in on its second decade as a firm in 2001, its partners congregated in Stowe, Vermont to ski. Between trips down snowy slopes, the team saw the down-sloping dotcom crash stock market as the time to plot a new investment strategy: take majority stakes in some of these fallen companies and rebuild their businesses.

Now, another two decades on, Battery is announcing $3.8 billion in fresh capital and its partners believe the multi-pronged strategy they built out will allow it to capitalize on deals other firms aren’t equipped to do. Partners at the Boston-based firm say they expect more opportunities to buy out venture-backed companies as the venture capital industry braces for a new 2000-like moment.

“This is a ripe time for exactly that same deal type to happen,” says general partner Chelsea Stoner. “We’re already starting to see some companies that are really solid businesses but not able to raise money.”

Battery’s new dry powder is divided between $3.3 billion for its fourteenth flagship fund and another $530 million for a side vehicle to write bigger checks into existing portfolio companies. The 39-year-old firm reported $17.8 billion of assets under management as of March, according to a regulatory filing it was required to make as a registered investment advisor. In recent years, according to general partner Michael Brown, financial resources have been split about equally between three components: early stage, growth stage and traditional buyouts.

Unique to the market moment, however, the firm’s venture-oriented investors say they expect more of their growth stage investments to look like buyout deals as well. In December, Bessemer Venture Partners launched a similar growth buyouts practice, but otherwise, traditional venture firms have seldom explored this type of strategy. Stoner says the firm targets companies with proven revenue—that could range anywhere between $4 million and $100 million—but with sales growth rates that have slowed to a level unattractive to traditional VCs.

Among the turnarounds is Curve Dental, a startup founded in 2004 which makes management software for dentists. Battery acquired most of the company in 2018 when it was generating $5 million in revenue, and after injecting more of its own capital to strengthen Curve’s sales and marketing teams, it helped raise revenues to $25 million this year, Stoner says. Since its first buyout of a growth stage company in 2008, Battery’s pace has picked up with eight of 17 such deals coming in the last three years. That pace could accelerate even further as a funding winter puts more startups in peril. After raising $2 billion for its 2020 fund vehicles, Battery nearly doubled its latest fund size in part to go after more of these big deals, Brown says.

“Valuations have had the most run-up over the last few years among growth stage businesses,” he says. “As that resets and companies need to think differently about their cost structure and raising capital, we may have an opportunity to go in and buy the majority of their businesses.”

Battery’s traditional venture practice—taking minority stakes in fast-growing startups—is also certain to benefit from the larger pool of capital. Historically, the firm could invest $15 million over the life of a venture capital investment, but that sum has grown over the last decade as each successive fund it raised was larger than the last. Battery holds a $180 million stake in marketing startup Braze, and general partner Neeraj Agrawal says the firm may look to build out more positions of $100 million or greater. Battery missed out on certain deals in the past, such as with customer engagement company Sprinklr into which it invested $25 million, he says: “If I could rewind, we would put in $50 million or $100 million.”

The larger fund size is also a function of another way Battery plans to swerve from peers: slowing down the pace of its funds. Capital for the previous two vehicles was deployed within 18 to 24 months, Brown says. And while Battery began raising its latest fund before the downturn and secured $3.5 billion by March, according to SEC filings at the time, it ran into the effects of the capital slowdown on its limited partners towards the end of the process. The new funds are $300 million shy of the firm’s upper bound target of $4.1 billion that it disclosed in the filings (for the previous two funds, Battery raised the maximum amount targeted, filings show).

“The limited partners were very stretched on their side to meet our timeline and meet our expectations because there were so many funds in the market at the same time,” Brown says, blaming it on an industry-wise acceleration of fund deployment to two years. “We heard from our investors directly the frustration with the two-year cadence,” Brown says. “We’re guilty of this too.” Battery’s plan then is to stretch out the powder of the fund to as much as three years. “The more time we give them between funds the better it is for us and for them.”