Today, Austin Ventures general partners Chris Pacitti and John Thornton, along with former Bain consultant Sam Kentor, announced that they are launching a new firm, Elsewhere Partners, to invest in companies outside of the traditional venture capital hubs of New York, Boston, and San Francisco.
Elsewhere Partners’ focus will specifically be on business software companies that are located outside of traditional venture capital hubs and have achieved substantial customer traction and revenue growth without significant outside funding.
Pacitti tells VentureBeat that he chose Elsewhere Partners’ focus after reflecting on his returns at Austin Ventures, where he’s been for 16 years. “When you’re focused on one geography, it pushes you to a wide aperture of domains,” Pacitti says. “Over time, I just found that the most consistent returns we drove were in software.”
In 2015, Pacitti decided to test this thesis through his personal investing, through a firm he set up called AVX Partners. Specifically, after investing in a company called Vyopta — a company in Austin that had been entirely bootstrapped up until that point, and was able to get to multiple millions in revenue — he realized that many companies that were outside of coastal markets didn’t fit the traditional venture capital mold, but could still achieve healthy exits. So, he began building a team — starting with his partner at Austin Ventures, Thornton — to start investing under the name Elsewhere Partners.
“There’s a lot of good tech hubs with strong or reasonably strong early stage capital, but if you look at those regions they have little to no local expansion stage capital,” Pacitti says. “Those companies kind of get into an interesting conundrum, where you can raise that $3 to 5 million series A, but then to truly raise that expansion stage, you have to track down coastal capital, and not every company fits that profile.”
Elsewhere Partners isn’t focused on creating more unicorns. Instead, Pacitti says Elsewhere Partners is looking for companies that are focused on niche applications of software — companies that are targeting $400 million markets, and “largely skipped a classic series A, or maybe skipped classic series B.” Elsewhere Partners’ goal then is to “take them from $5 million in revenue to $20 million in revenue,” where they can then aim for a private equity outcome, or raise another round of funding.
“Oftentimes success in a niche vertical can set you up in success for a more expansive market,” Pacitti argues.
Pacitti also adds that since much of the team’s experience has been in Austin, Elsewhere Partners is looking for cities that have a similar to feel to Austin — cities like Salt Lake City, Nashville, Charlotte, Atlanta, and Chicago that are home to large universities and a healthy dose of early-stage capital.
Elsewhere Partners has invested $30 million in companies to date. The firm’s portfolio companies include Tasktop, a Vancouver company that provides value stream integration for software development organizations in large enterprises; Atlanta-based Itential, which provides integration and advisory services in software defined networks (SDN) domains; and Relatient, a patient engagement software company located in Nashville.
While Pacitti decline to disclose fund size, he says that Elsewhere Partners expects to close one or two more deals by year’s end, and hopes to continue to invest in five to eight companies each year. Both Pacitti and Thornton will remain sitting general partners at Austin Ventures while leading Elsewhere Partners.