High Alpha, an Indianapolis-based venture firm that invests in early-stage software-as-a-service companies, has closed on a $125 million investment fund—its fourth and largest investment fund since the firm’s launch in 2015.
The firm had originally planned to raise $110 million for Fund IV, but it raised its fundraising target to $125 million after seeing higher-than-expected interest from investors, the company announced Tuesday.
Fund IV marks some shifts in High Alpha’s operating strategy—notably, it plans to launch fewer companies per year than it traditionally has in the past, and it has cut its staff nearly in half. The firm will also bring its startup-launch and venture-investing arms together in a single entity.
One of High Alpha’s distinguishing features is that the firm both launches its own businesses and invests in other people’s startups.
The firm has invested in more than 90 North American companies over the past nine years. Of those 90, about 40 of them were created internally out of an entity called High Alpha Studio. To help those studio startups grow, High Alpha helps them with branding, design, product development, engineering, human resources, finance and other services.
To date, High Alpha has averaged between four and five startup launches per year, although those numbers have varied widely from year to year: In 2017, High Alpha launched only one startup. At its peak in 2020, the firm launched 11.
Going forward, the firm will pull back on startup launches, with the aim of doing about two per year, High Alpha Partner Kristian Andersen said.
“Instead of spreading peanut butter across five or six companies a year and kind of measuring success on volume, we’re going to take a more targeted, focused approach,” Andersen said. “We’re going to get deeper with those companies.”
The shift shouldn’t be interpreted as a sign that High Alpha intends to stop launching startups, Andersen said.
As the firm was raising money from investors for Fund IV, those investors clearly indicated their desire for High Alpha to continue both investing in and creating startups, Andersen said. “They were really quite explicit with us that what makes us interesting and valuable in the market is that we start companies,” he said.
But with Fund IV, High Alpha is no longer raising separate funds for its startup studio and its investing activities, as it has in the past.
For instance, in early 2021, High Alpha closed on a $110 million venture fund and, later that year, it closed on an $18 million studio fund. The studio fund was used to launch companies and make initial investments into those startups. The venture fund was the source of subsequent investments into the studio startups and the venture fund also made investments into outside software companies.
In 2018, High Alpha raised $85 million for a venture fund and an additional $16.5 for a studio fund. This time around, the $125 million Fund IV will cover both startup-launching and venture-investing activities.
High Alpha is also operating with a smaller staff than it had several months ago. The firm’s website currently lists a staff of 24, compared with 45 listed in December.
The decision to launch fewer startups led High Alpha to “right-size” the number of people on its staff, Andersen said.
Several people who left jobs at High Alpha in recent months have gone on launch companies, including some companies affiliated with High Alpha. Other people have taken jobs at non-High Alpha companies, according to an analysis of those individuals’ LinkedIn pages.
