Greycroft co-founder Ian Sigalow on investing $1B in this market

Greycroft, the now 17-year-old, New York and Los Angeles-based venture firm, has grown up in more ways than one. What began with three founders has evolved into a 60-person team. What began as a $30 million fund has grown into an enterprise that is today managing more than $3 billion in assets, including two funds totaling roughly $1 billion that were announced in late April.

Like every firm, Greycroft, which targets investments from $250,000 up to $50 million, has had its ups and down with its portfolio companies. Mobile games maker Scopely said in April that it’s selling to Savvy Games Group, owned wholly by Saudi Arabia’s Public Investment Fund, for $4.9 billion. (Greycroft invested roughly $100 million into the company and owned more than 5% of the business.) Greycroft also backed the dating app Bumble — which staged a successful IPO in 2021 — and invested in Shipt, which sold to Target for $550 million in cash in 2017. Other bets have proved more problematic, including The RealReal, which staged a traditional IPO in 2019 and has since seen its market cap crater; and Bird, the scooter company that went public via a special purpose vehicle in late 2021 and is now on the verge of getting delisted from the NYSE.

To learn more about the ride, we had a wide-ranging chat late week with firm co-founder Ian Sigalow, who, for what it’s worth, doesn’t have a stance on Saudi Arabia-backed U.S. venture funds (though Greycroft is not among them), says Greycroft is in rarified company when it comes to its ability to write big checks, and observes that anyone can play venture capitalist right now, given some of the prices in the public market — not that Greycroft is shopping there, he added.

You can hear that conversation here; in the meantime, highlights from that chat follow, edited lightly for length.

TC: You’ve raised basically two thirds of your assets under management in the last few years. In retrospect, do you think that you invested that too quickly?

IS: If I could take a ‘do over’ of 2020 and 2021, we would probably look back and say [that] half of the capital deployed during that period, we would have been better off waiting. On the flip side is that the other half of the capital employed during that period, I think we will make a really strong venture return on. Time will tell [but] we built very meaningful ownership positions in a couple hundred companies going into kind of the late phase of this asset bubble and [something like] $4 billion or $5 billion of follow-on capital went into Greycroft companies in 2020, and that number grew in 2021. It was like $6 billion to $7 billion — enormous numbers.

When we started Greycroft in 2006, the entire U.S. venture capital industry was $30 billion. Our own portfolio [companies] were commanding so much capital, and you look at it and you kind of have to make a determination, [asking about] every single company, Where am I going to protect my ownership and and where am I not? The challenge in that market dynamic is that if you don’t raise the money and your competitors do, you’re really at a strategic disadvantage. So our companies had to go get capital. And for our part, because we were the largest shareholder in many of these companies, we had to invest something. And I think we deployed $250 million to $300 million in 2020 and 2021, which is a small sum relative to the $10 billion our companies raised during that period, but was still a large sum for us. And I’m very happy sitting here in 2023 that our businesses have the balance sheet they have . . .but the downside of it is that not every dollar deployed during that window is going to generate a 10x or greater return.

Big asset managers say growth at a discount is where venture is heading. Are you looking for a bigger ownership percentage in deals than in recent years?

Venture at the moment is a tale of two cities. The capital is flowing into the highest growth, best-quality companies that I’ve seen, and we’re still meeting with businesses that are going zero to $100 million of revenue in a couple of years. And those businesses can command steep valuations and a lot of mindshare and a lot of funding. It’s almost as if the party didn’t stop for those companies in 2022. Then you’ve got a second set of businesses that are growing slower, are not likely to be marquee assets for a handful of reasons, or just have something to prove before they can break out. And I think the challenge today is sorting through that list and understanding what has to change – what market unlock has to happen —  for that second set of companies to explode with growth. If you do, you’ll see the valuation and the multiple improves; if you don’t, there just isn’t capital for them.

There’s obviously a lot of great value to be had regarding publicly traded companies whose shares are down and are highly liquid. Is [shopping for these] something that Greycroft is doing in this market?

We have the ability to invest in public equities. We’ve spent time looking at quite a few names that have sold off in the public market. We have yet to make either a PIPE or standard open market purchase of of a public equity yet. Of course, we own public securities because we’ve taken companies public; we continue to manage those. But I actually think it’s an interesting area to look, and it’s an area that’s open to everybody. I mean, you can go be a venture capitalist today in the public market. If you can find an undervalued business that’s got good growth prospects —  because the companies with a market cap below $1 billion or $2 billion don’t trade very well, there’s not a lot of institutional coverage, their market cap is generally speaking too small for the Fidelitys of the world to take an interest in — if you get into one of those businesses early, you can you can make 10 times your money. In fact, I think 10 years from now, people will look back and say, ‘Wow, there was a 50x investment to be made, if somebody looked at  these couple of names in the public market.’

Again, you can hear the full interview here, where we also talk with Sigalow about the circular economy, flexible living, and how Greycroft is thinking about AI — and where it’s placing its related bets.

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