Things are heating up for Costanoa Ventures; closes two oversubscribed funds
Things are heating up for Costanoa Ventures; closes two oversubscribed funds
Following the close of two new funds, Costanoa Ventures is enjoying some of its best returns to date: Costanoa Fund IV, a $225 million early-stage fund, and Opportunity Fund II, a $115 million later-stage fund.
Formed as a sole general partner in 2012, Greg Sands has stated that the firm's investments have followed a consistent pattern since its inception. Examples include Intaact, which was acquired by Sage in 2017 and Datalogix, which was acquired by Oracle in 2014.
He went on to say that each subsequent fund has been better than the one before it. The addition of these funds brings the firm's total commitments to date to more than $900 million, exceeding the previous record.
"It's the polar opposite of what actually happens," Sands explained. "In most cases, your first or second funds are excellent small funds, but as the fund grows in size, the returns become less favorable."
In addition, Costanoa invests in enterprise software at the seed and Series A stage, with a focus on applied artificial intelligence, SaaS, fintech (financial technology), security (security as a service), DevOps, and data infrastructure.
Its strategy, process, and execution were all deliberate, which allowed it to gradually build a stronger team with a diverse range of strengths and capabilities. Women now make up 60% of Costanoa's team and nearly 50% of its partners, according to the organization.
The founder continued, "Even the first few hires looked like me, but we've worked hard, and Martina (Lauchengco) and I are the champions of that effort, which is a large part of our firm' s evolution."
In recent years, Costanoa's strategy has evolved to include more early-stage investments, with up to a third of the firm's capital invested in companies during their formation or pre-seed stage. In addition, Sands explained, some of that capital has been invested in emerging markets, fintech, and decentralized finance, as well as in companies where they believe the first investment opportunity may be the most advantageous.
He expects to invest $30 to $35 million in new companies through Fund IV, while the Opportunity Fund will invest in 12 to 15 of its current portfolio companies, according to his projections.
In addition to focusing on early-stage investments, Costanoa also has the ability to provide follow-on funding, which enables it to provide the best of both worlds, according to Lauchengco.
"That is what it means to be a long-term partner," she went on to say. It's common for us to receive an initial check and then be on our way, but this way, we can continue to work as partners.
As part of the Fund IV investment, Costanoa began investing in Latin America and Africa and has since expanded its fintech practice to include cryptocurrency and web3-related businesses. One of its first investments in Latin America occurred in November, when it participated in the seed round of Plug Pagamentos.
The firm has already made ten investments from the fund, including co-leading Highnote's $54 million Series A and co-investing in Coiled's $21 million Series A, which was announced in May. Other investments include co-leading Highnote's $54 million Series B and co-investing in Coiled's $21 million Series C. In addition, the acquisition of Roadster by CDK Global and the sale of Kenna Security to Cisco occurred during this period.
