Reach Capital, Co-founded by a San Francisco-based venture firm jennifer carollan And Shantel Garvey, focused exclusively on edtech for years before the field was filled with unicorns. The rare, female-led partnership closed its third fund, a $165 million vehicle and largest fund ever, in February. That said, the returns from its past funds suggest that early bets on the now-revived sector are paying off.
Reach Capital’s second fund, a $82 million vehicle that closed in 2017, posted a net internal return rate of 72.1% as of Q2 2021, according to data intended for the LP and obtained by Nerdshala. The fund, which invests in Pepper, Winnie, and the now-unicorns handshake and outschool, is up several percentage points above the top quartile of funds of that vintage. According to data from Cambridge Associates, the top quartile of funds of that vintage had a net IRR of 47.64% in the same quarter.
By comparison, Reach Capital’s first fund was several percentage points below the top quartile of fund performers in its older year, 2015.
It’s worth noting that Reach Capital’s returns for its other funds are mostly paper gains, meaning the net IRR is based on growth in valuations. Given the fact that the firm is heavily focused in the follow-on round, IRR is thus a snapshot of its performance moment in time. Looking at a portfolio company, Reach recently made its first cash exit. Height Merged with Curriculum Associates, but this is not represented in the data.
Many emerging startups can explain the reason behind the superior performance between Reach I and Reach II. According to an Impact report, Reach II made $32 million in 14 major investments including Newsla, Handshake and Outschool, all companies that have now passed the billion-dollar valuation mark, making them unicorns. It also put money in the paper, which recently reached a nine-figure round led by the IVP. By getting into those companies early on, and then flagging them as a category known as the edtech boom, Reach’s position is validated.
Diversity of Reach II’s Portfolio Beats the industry average, but founders are still centered as white and male. The report said that around 74% of investments have been set up by men, while 26% are set up by women. About 62% of the founders identify as White, 20% identify as Asian, 14% as Latinx and 4% as Middle Eastern. Reach Capital II has no black founders in its portfolio.
Reach’s impressive returns come at a time when the enterprise is booming more broadly. Several investors and founders spoke on the background of whether the returns for a seed-stage fund of that vintage are impressive. One investment strategist said that, while it’s not unheard of in this environment, the return percentage is “crazy good.”
“Easily the upper quartile and probably the upper tithe,” he said. “Unless we’re talking crypto, in which case it’s pretty normal.” A different seed-stage investor pointed to Fred Wilson’s recent blogpost “Cash on Cash vs IRRAlluding to the idea that holding periods can skew a fund’s performance data.
Still, Reach’s returns provide an impressive window into how the most diverse partnerships in venture capital are performing within one of the most revitalized sectors in Startupland. Speed is not going unnoticed. The filing shows Reach is raising money for a $50 million Opportunity Fund. The company has been on a hiring spree for some time now, that too. jomaira herrera as a partner from Cowboy Ventures and Tony Van As Head of Investor Content from Adsurge.