Service providers — lawyers, accountants, bankers, consultants and the like — are always with and around entrepreneurs, helping founders start their company, scale their business, and square away the financials and business plan. However, it’s not often that they have the opportunity to actually invest in and take part in funding rounds early on. A new fund has been brought to the Southeast — and already has three deals in the books — to change that, allowing any number of the top service providers to co-invest with VC partners in funding rounds.
Led by Nelson Mullins’ Partner Doug Spear and Square 1 Bank’s Ned Hill, the southeastern arm of the Service Provider Capital venture fund has launched a $5 million fund to get in on deals throughout the region. Thus far they have officially invested in three companies, two based in Atlanta and one in Durham, NC.
“For one of the first times in the southeast, we have an opportunity to bring together all these people that technically compete for clients to work together collaboratively,” says Spear. “That is a new concept for many members of the service provider industry in the Southeast. We invest in deals where I’m not the company’s lawyer, I’m not the VC’s lawyer anyway — but now the deal still benefits me and I’m still invested in the outcome. It doesn’t have to be only two outcomes — you win, I lose.”
The first deal the SPC fund closed is NC-based Spiffy, an app and platform that tech-enables the car washing business in a more-efficient, environmentally-friendly manner. Spiffy was founded by serial entrepreneur Scot Wingo, formerly of ChannelAdvisor (a cloud-based e-commerce software company that he took public in 2013).
“Scott thought our fund was a great idea — he liked our network and wanted to be a part of it,” says Spear. “That was really a great testament to what we’re trying to build.”
That network is what really differentiates the SPC fund from a traditional VC or institutional investor, says Hill. The southeastern SPC will have LP members from Atlanta, Nashville, Raleigh-Durham, and across the region.
“What we’ve heard so far from most entrepreneurs is that the size of our check is not the most important element, but what is even more impactful is the network we bring to those companies across our investor base,” says Hill. “We try to be very neutral— we have multiple service providers from the same space in the fund, intentionally. With that strategy, we can bring a broader set of networks, knowledge, and resources to those companies.”
The other two deals the SPC fund has closed are Atlanta-based companies. Rented helps simplify the short-term home renting process via a marketplace that connects homeowners and property managers. And Fraudscope, the SPC fund’s most recent deal, uses big data to provide fraud detection and mitigation for the healthcare space. The Georgia Tech-spinoff company won the Atlanta Startup Battle last year.
Spear says the rapid pace and high deal flow of the SPC fund also sets it apart from a traditional fund — they intend to invest in up to 40 or 50 deals in the next three to four years. They are able to do this because of the model of the fund — rather than doing due diligence on deals, they come in as a co-investor on deals that already have an institutional VC committing capital.
Deals have to meet very specific criteria: the company must be raising its first institutional round, of $1 million or more, with at least $500,000 coming from an institutional VC who has conducted due diligence.
“The whole idea is we’re networking to identify deals and then close them quickly and painlessly, says Spear. “This fund is about finding the deals where we think our network can be brought to bear to add value to the company.”
“We want to invest in every single deal in the region that meet our criteria. We’re working on two more right now and have several others in the pipeline. It’s conceivable in the first 3-4 months of our existence we’ll have invested in 5 or 6 deals. That’s really kind of unprecedented here,” says Hill.