Great investment opportunities might be found a thousand miles away, or across the street. Richmond-based venture capital firm Harbert Growth Partners has done both.
The partners in the firm — Wayne Hunter, Tom Roberts and Brian Carney — have put in tens of thousands of miles searching for promising young companies to back financially, while also finding some local gems.
The firm, an affiliate of Birmingham, Ala.-based Harbert Management Corp., has invested more than $200 million in 40 health care and technology companies across four different funds since making its first investment in 2004.
Harbert Growth Partners has invested in companies as far away as Denver and as close as downtown Richmond. It has active investments in seven companies in Virginia, including the Richmond-area businesses Kaléo Pharma Inc., Envera Health Inc. and Ledbury Inc., a menswear brand that once had an office right across the street from Harbert Growth Partners’ office in Shockoe Slip.
“We have made some great investments,” said Hunter, the firm’s managing partner.
The most recent success came in December, when one of Harbert’s portfolio companies, Shipt Inc., was acquired by the retail giant Target Corp. for $550 million.
Founded in 2014 in Birmingham, Ala., Shipt is an online, membership-based grocery marketplace that uses a network of “personal shoppers” to provide same-day delivery to customers who order products from stores.
Harbert was one of three venture capital firms that had invested $20 million in Shipt in 2016, with another $40 million funding round in 2017. The firm does not disclose specific financial returns on its investments, but Hunter said the return was “really great for us” and “a win-win” for everyone involved.
“We can’t give the exact numbers, but it was a 300 percent IRR (internal rate of return),” he said. “It was good for the investors, and the entrepreneurs, and the employees, because they are all going to remain with Target.”
Shipt had a lot of the attributes that Harbert looks for in investments. It was an “emerging growth” company with a good management team that had a track record of success, and it was showing rapid growth. Harbert typically invests in businesses with $5 million to $20 million in revenue that already have raised about $3 million to $8 million in capital and are showing growth of 50 to 100 percent per year.
“They were growing really fast,” Hunter said. “Almost all of our companies are growing 100 percent year-over-year, typically doubling revenue year-over-year.”
Harbert also likes to find companies that are likely to have several potential acquirers in a few years. In Shipt’s case, large retail chains such as Target have been looking for ways to compete with Amazon.com in the same-day delivery service.
“When Whole Foods got acquired by Amazon, everybody stood up and took note,” said Roberts, Harbert Growth’s general partner. Some predicted that might be bad for companies like Shipt, but “we thought it was very good because it was going to force everybody off the sideline to make a decision,” he said.
“Once Amazon announced their acquisition of Whole Foods, every grocer in the country decided they had to have a delivery option, and it just further accelerated the growth pace for Shipt,” Hunter said.
Shipt was the third company Harbert invested in as part of its fourth fund, or Fund IV, which closed in August 2017 with total commitments of $120 million.
Harbert’s investors are primarily institutional investors. “Our goal is to significantly exceed the returns generated by the public markets,” Hunter said. “If we do that consistently, we are able to attract capital.”
Other active investments in Fund IV include Cloud Elements Inc., a Denver-based technology company; MapAnything Inc., a Charlotte, N.C.-based mapping and geoanalytics company; Sidecar Interactive Inc., a develop of machine learning technology; and Springbot Inc., an Atlanta-based e-commerce marketing platform.
Also receiving financial backing from Fund IV is Richmond-based Envera Health Inc., a service company that helps health care providers such as hospital networks better synchronize and coordinate the services they provide to patients, enabling better health outcomes and customer engagement.
Envera was founded in 2015 by Dan Neuwirth, who had previously co-founded a company in Richmond named Agility, another health care services company that ultimately was acquired by GE Healthcare, a unit of General Electric Co. Harbert Growth Partners also was an investor in Agility, so the firm decided to back Envera, too.
“They have a good track record in health care investing,” Neuwirth said of Harbert.
At Envera, Neuwirth said, “our strategy is to grow by identifying some more forward-thinking health care systems that recognize the need to really change their delivery model, in terms of how they think about patients as consumers and want to differentiate themselves by providing a better experience, which we believe leads to better outcomes.”
The company, which moved into a downtown office in 2017, has about 120 employees and is expecting to add more.
“There is so much focus now on hospitals and how they deliver care in today’s world,” said Carney, general partner at Harbert Growth who serves on the board of Envera. “What we like about what Envera is doing is how they are helping hospitals drive better engagement with their customers, which is one thing they have always struggled with how to do.”
The partners at Harbert serve as board members for the portfolio companies, helping to advise their growth and strategy. About two-thirds of their time is spent on that, with another third spent looking for new investment opportunities.
Besides Shipt and Agility, Harbert made successful investment exits from Yap Inc., a Charlotte-based speech recognition technology company that was acquired in 2011 by Amazon; and Invincea Inc., a Fairfax-based malware protection software company that was acquired in 2017 by Sophos Group.
While the firm does invest in Richmond-area companies, it is difficult for any venture capital firm to commit all its resources in just one market in the Southeast, Hunter said. “The opportunities are so spread out,” he said.
“We are seeing more interest from the big firms outside of the region looking at investing in this region, but they have huge funds and one of the problems is they can’t really make these early growth investments,” he said.
One other local venture capital firm that looks for investments in the Richmond region and Virginia is NRV, which last June finished assembling a $33 million investment fund, called its Early-Stage Growth Fund, with money raised from 83 investors across Virginia.
The firm expanded its geographic scope beyond just the Richmond region to seek investments across the state. In October, it participated in a $6.6 million investment round in ICX Media, a Washington-based technology and data analytics company.
Hunter and Roberts started Harbert Growth Partners in 2002 after previously working in technology industry investment banking at Wachovia, First Union and Wheat First Butcher Singer. Hunter had a professional relationship with Raymond Harbert, the founder and chairman of Harbert Management Corp., an investment management company with about $5.3 billion of assets under management.
Early on, the partners in Harbert Growth Partners decided they wanted to be based in Richmond and focus on high-growth businesses outside of the Silicon Valley area of California, and the New York City and Boston areas, which are the top three U.S. markets for venture capital. More than 80 percent of all venture capital assets under management are managed by funds in California, New York and Massachusetts.
“We knew we wanted to be in the Southeast and Mid-Atlantic because we thought that was an underserved region from a venture capital perspective,” Hunter said. “There is plenty of capital in the Northeast and the West Coast, but there was not a lot of capital available in this region.”
Most of the firm’s investments have been in the Southeast, particularly in Northern Virginia, Atlanta and the Research Triangle Park area of North Carolina.
“There is opportunity outside of the West Coast and Silicon Valley,” Roberts said. “We recognized that when we started this venture. That has been our core focus — the Mid-Atlantic and Southeast — and helping to fill the supply and demand imbalance, in terms of lack of capital relative to the entrepreneurial opportunities in the region.”
Harbert typically invests in 12 to 14 companies in each of its funds, generally writing checks in the $5 million to $8 million range, and holding an investment for three to five years.
For every venture it backs, the firm looks at about 300 to 400 potential investments, but it maintains a database of thousands of businesses. Some are simply too early in their development to fit within Harbert’s investment strategy.
“A big part of our strategy is to be on the road and meeting entrepreneurs early, before they are raising money, so we get to develop a relationship with them,” said Carney, who joined the firm in 2007, bringing experience in health care industry investing, having previously worked in health care investment banking at Morgan Stanley. “We found that is usually the best metric for success because these are long-term investments and commitments, so you want to have that relationship with a management team outside of the traditional auction process when somebody is raising capital.”
While earning great returns for investors is the primary goal, “working with entrepreneurs is so energizing,” Hunter said. “They are convinced they can make a positive impact on the world and in their industry sector.”
“We invest in these companies when they have 20 or 30 employees, and seeing them grow to 200 or 300 employees is very rewarding,” Hunter said.