Reach Capital, a San Francisco-based venture capital firm co-founded by Jennifer carolan and Shauntel Garvey, focused exclusively on edtech for years before the industry swelled with unicorns. The rare female-led partnership closed its third fund in February, a $ 165 million vehicle and the largest to date. That said, the returns of its previous funds show that the early bet on a now revitalized sector is paying off.
Reach Capital’s second fund, an $ 82 million vehicle closed in 2017, posted a 72.1% net internal rate of return in the second quarter of 2021, according to data for LPs obtained by TechCrunch. The fund, which invests in Paper, Winnie and the now unicorn Handshake and Outschool, ranks several percentage points above the top quartile of this vintage’s funds. According to data from Cambridge Associates, the top quartile of funds this year had a net IRR of 47.64% in the same quarter.
By comparison, Reach Capital’s top fund was several percentage points below the top quartile of best-performing funds in its 2015 vintage.
It should be noted that Reach Capital’s returns for its second fund are mostly paper gains, meaning the net IRR is based on a slight increase in valuations. Considering the fact that the company is highly concentrated in the monitoring rounds, the IRR is therefore a single moment snapshot of its performance over time. Reach recently had its first cash outflow, seeing holding company Ellevation merge with Curriculum Associates, but this is not represented in the data.
A number of successful startups can explain what explains the improved performance between Reach I and Reach II. According to an impact report, Reach II invested $ 32 million in 14 core investments, including Newsela, Handshake, and Outschool, all of which have now passed the billion dollar mark, making them unicorns. He also invested money in Paper, which recently landed a nine-digit round led by IVP. By entering these companies early and then watching them be branded as an edtech boom category, Reach’s positions are validated.
The diversity of Reach II’s portfolio exceeds industry averages, but the founders are still concentrated as whites and men. About 74% of investments are created by men, while 26% are created by women, the report says. About 62% of founders identify as white, 20% identify as Asian, 14% identify as LatinX, and 4% identify as Middle Eastern. There are no black founders in the portfolio of Reach Capital II.
Reach’s impressive returns come at a time when the business is booming. A number of investors and founders have spoken from their background as to whether the returns are impressive for a seed fund this vintage. An investment strategist said that while it is not uncommon in this environment, the percentage of return is “delicious.”
“Easily the top quartile and possibly the top decile,” they said. “Unless we’re talking about crypto, in which case it’s pretty ordinary.” Another early stage investor pointed to Fred Wilson’s recent blog post “Cash on Cash vs. IRR”, alluding to the idea that holding periods can skew fund performance data.
Yet Reach’s returns provide an impressive window into the performance of one of the most diverse venture capital partnerships in one of the most revitalized sectors in startup country. The momentum does not go unnoticed. Documents show Reach is raising money for a $ 50 million opportunity fund. The company has also had a hiring surge lately, which has led to Jomayra Herrera of Cowboy Ventures as a partner and Tony wan of EdSurge as Content Manager for Investors.