Devdutt Yellurkar, the general partner of CRV, flew to Copenhagen, Denmark in October 2008 to meet the Zendesk founders at chief product officer Alexander Aghassipour’s loft apartment, as world leaders gathered elsewhere to try to stabilize the economy. The founders (and sole workers at the time) of Zendesk sat around Aghassipour’s kitchen table and discussed their vision for marketing customized customer support.
Subscription pricing for their product would streamline billing for an area where many businesses spend a lot of money and effort. Yes, Yellurkar had arrived. After investing $1.5 million, CRV received a 30% equity stake in the company and served as the series A lead investor. As a publicly traded company, Zendesk now has a market cap of $9.4 billion and generates yearly revenue of over $1.5 billion.
Now CRV wants to invest in the next Zendesk, or more accurately. And on Thursday, the company expects to unveil two new funds totaling $1.5 billion, as reported. In a nutshell, CRV thinks a recession is the best moment to search for and invest in the next wave of successful businesses.
Their new $1.5 billion is split between two funds: the $500 million second-stage growth fund for subsequent series B and C investments, and the CRV XIX fund, which invests in startups in their early stages. When it comes to making investments, CRV is laser-focused on enterprise software and technology, namely in the cloud, customer relationship management, and online marketplaces.
CRV (previously known as Charles River Ventures, in honor of the founder’s alma mater, Massachusetts Institute of Technology) has invested nearly $5 billion in 500+ companies over the course of its more than half a century in the venture business. These companies include Postman, Airtable, DoorDash, and Patreon. The company has seen the tech industry go through multiple innovations and economic transformation cycles, so it believes that the current tumultuous market conditions are ideal for investing in and supporting new businesses.
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CRV general partner Murat Bicer told Fortune, “If you look at the last 52 years of CRV’s existence, I would argue some of our best investments are made directly after these downturns.” To put it another way, “we think now is the right time to deploy these monies.”
It’s a controversial opinion, but it’s grounded in research. Investing in venture capital has been found to be profitable both during and after economic downturns. The University of Miami cites statistics from PitchBook showing that VCs made money during the dot-com bust of the early 2000s and the Great Recession of 2008. Angela Lee, a venture capital professor at Columbia Business School and the founder of the women-only investment group 37 Angels, has observed that “funds that are formed amid economic downturns tend to fare well.”
Lee believes that the business will be able to get advantageous equity, board seats, and liquidation terms thanks to the timing of the fund’s focus on early-stage investments. This is because CRV invests in startups at a time when most VCs are either supporting established businesses or hesitantly doling out funds to start-ups. CRV expects private market valuations to fall during the next six to twelve months due to a shortage of accessible capital in the venture capital ecosystem, therefore this competitive landscape will work to their benefit. When this occurs, CRV plans to ramp up its operations significantly.
It is CRV’s stated intention to invest between $5 million and $15 million in entrepreneurs in their early stages. Furthermore, CRV always negotiates to assume the lead and a seat on the board during series A funding rounds.
Not that there’s any certainty of financial gain from issuing checks in the current bear market. Giving out $1 billion to cash-starved startups could encourage CRV to place riskier bets, which could then encourage those businesses to pursue more lucrative exits in order to recoup their investment, even if doing so would be detrimental to the interests of the company’s founders or employees. It worries me a little bit when I hear $1.5 billion and early stage,” adds Lee.
Although CRV invests mostly in start-ups, the majority of the $1.5 billion in funding for the company came from personal connections of the firm’s limited partners. CRV stated that several of its investors have been with the fund since its founding in 1970, however, the firm would not identify its limited partners (LPs). The State of New Mexico is a noteworthy new investor, allocating a portion of its $34 billion sovereign wealth fund to CRV. Along with the launch of this fund, CRV will consolidate its operations into its two Bay Area locations, leaving Boston as the only remaining location bearing the company’s name.
Some of the companies in CRV’s portfolio are valued at over $2 billion at their most recent valuations, and their founders have praised CRV for its ability to establish solid relationships (per PitchBook). As per reports, in discussions with Airtable, Postman, and Vercel’s management, the founders attribute much of their success to the early funding and valuations from CRV.
Howie Liu, CEO of Airtable, met the VC firm in 2015 when his four-person startup was still a kitchen table operation and he was funding his $7.6 million series A. Liu attributes Airtable’s meteoric rise to his chance encounter with CRV investors.
When asked about the few investors who were prepared to give him an hour of their time, Liu recalled, “I honestly do remember CRV as one of the few.”
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