Alpha Partners' $153 Million Fund: Investing in Pro Rata Rights

Alpha Partners, a venture capital firm founded in 2014, has announced a $153 million third fund, marking a significant expansion from its previous $52 million fund. The firm specializes in investing alongside early-stage venture capitalists (VCs) to help them maintain their ownership in promising companies during later funding rounds.

This strategy, known as investing in "pro-rata rights," has become increasingly relevant as startups tend to stay private for longer periods.

A Novel Approach to VC Investment

Alpha Partners' approach stands out in the VC landscape. While other firms have adopted methods like opportunity funds and special purpose vehicles (SPVs) to maintain stakes in their best startups, Alpha Partners' focus on pro-rata rights has gained popularity due to its reliability and safety.

The Importance of Pro Rata Rights

Pro rata rights allow investors to maintain their percentage ownership of a company as it raises additional funding. This is crucial for seed-stage VCs who want to retain their influence and potential returns in high-growth startups.

• Pro rata rights prevent dilution, ensuring VCs retain a meaningful stake in the company.
• They provide VCs with continued access to information and decision-making power.
• They offer VCs a significant advantage in future funding rounds, as they can maintain their ownership and influence.

Alpha Partners' Investment Criteria and Strategy

Alpha Partners typically invests $5 million to $10 million alongside seed investors in companies raising Series B rounds or later. Their focus is on companies with strong fundamentals, including:

• More than $10 million in revenue
• Annual growth rate of 50% or more
• Near profitability
• Leadership position in their respective category

The firm prioritizes investments in deals led by top-tier VCs, ensuring a high quality pipeline of potential opportunities. Alpha Partners' investment decisions are swift, often made within one or two weeks, thanks to their clear criteria and expertise in the space.

Alpha Partners' Investment Portfolio and Success Stories

Alpha Partners has a notable portfolio of investments, including:

• Pearl, an AI platform for dentists, backed alongside Crosscut Ventures.
• Shield AI, a defense tech startup.
• Rad AI, a startup that generates reports for radiologists, backed by Khosla Ventures.

The firm has a proven track record of successful exits, including IPOs of Coursera, Rover, Udemy, Vroom, and Wish. Their investment in Coupang's Series G and Series F alongside Primary Ventures yielded a significant return, generating about 20 times their initial investment.

Alpha Partners' Future and the Value of Pro Rata Rights

While the current market environment has slowed down late-stage deals, Alpha Partners remains optimistic about the long-term value of their strategy. The firm believes that investing in pro-rata rights provides their limited partners (LPs) access to top-tier deals and a unique advantage in the competitive VC landscape.

The Importance of Access in Venture Capital

As Brotman states, "What's often said about venture capital is 'it's not an asset class, it's an access class.'" Alpha Partners provides their LPs access to the top 1% of deals, offering a unique opportunity for significant returns and participation in the most promising startup ventures.

Conclusion: Alpha Partners' Pro Rata Strategy

Alpha Partners' focus on pro-rata rights has positioned them as a unique and valuable player in the venture capital landscape. Their ability to identify and invest in promising startups alongside top-tier VCs, while ensuring continued ownership and influence for their partners, is a testament to their expertise and commitment to delivering exceptional returns.