Alpha Partners raises $153M third fund for pro-rata investments

Steve Brotman started Alpha Partners in 2014 with a novel idea at the time: investing alongside early-stage VCs to help preserve their ownership in promising companies as they transition to later funding rounds. Alpha's first fund was a mere $10 million.

But as startups started staying private for longer, the VC industry invented various mechanisms for maintaining stakes in their best startups. Many early-stage firms raised opportunity funds, which are dedicated pools of capital specifically designed to double down on their most promising investments. Others relied on special purpose vehicles (SPV), financial instruments that allow multiple parties to pool their funds to invest in a single company. Alpha Partners' approach also gained some popularity.

On Monday, Alpha Partners announced a $153 million third fund, nearly three times larger than its second fund of $52 million that closed in 2017.

Although Brotman told TechCrunch that raising this fund was a "brutal slog," he also said that Alpha Partners' strategy of helping seed-stage VCs exercise pro-rata rights — the legal term for allowing investors to preserve their percentage ownership of the company — is more relevant than ever.

Opportunity funds have fallen out of favor after the last VC boom ended a couple of years ago, and many investors who backed SPVs in 2021 "got a little bit singed," he said. "We are a safe pair of hands," he said.

Alpha Partners typically writes $5 million to $10 million checks alongside seed investors into companies raising Series B rounds or later.

"We have only one or two weeks to make a decision" on an investment, Brotman said. For that reason, the firm sticks to "simple" criteria.

Alpha Partners invests primarily in deals led by top-tier VCs, and favors companies with more than $10 million in revenue, growing at 50% annually, close to profitability, and that are leaders in their category.

"Within five minutes, I can tell you whether or not we're interested," Brotman said.

The firm's latest investments include Pearl, an AI platform for dentists, which Alpha backed alongside Crosscut Ventures; defense tech startup Shield AI; and a startup that generates reports for radiologists, Rad AI.

Early-stage venture firms partnered with Alpha on investments include Artis Ventures, Mantis VC, Silvertech Ventures and Santa Barbara Venture Partners.

Alpha Partners' exits include IPOs of Coursera, Rover, Udemy, Vroom and Wish. But the firm's investment in Coupang's Series G and Series F alongside Primary Ventures really helped the firm stand out. "We made about 20 times our money," Brotman said. "That's what really put us on the map."

Although there are now fewer later-stage deals getting done, Brotman is convinced that Alpha Partners' strategy of investing in pro-rata rights is here to stay.

"What's often said about venture capital is 'it's not an asset class, it's an access class,'" Brotman said. "We provide our LPs access to the top 1% of all deals out there."