Bend investor Cascade Seed Fund is coming back for Fund III, an effort for which it hopes to raise another $10 million.
Fund managers Julie Harrelson and Robert Pease expect to have a first close, of about $7 million, on March 1. The $10 million target would make the fund the same size as Fund II, which closed in 2022.
The move allows Harrelson and Pease to dial in their strategy of staying small and funding early stage.
“It’s the anti-pattern,” said Pease, noting that many other local funds have grown in size over the years. “The fund size is intentional because the math is intentional. What you have to believe and invest in and the outcomes you need scale exponentially based on fund size.”
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Cascade Seed Fund invests in business-to-business software, or tech-enabled companies and, if the team and market is right, consumer brands. Check sizes average about $200,000. The fund reserves some capital for follow-on investing.
Keeping the fund size small means the group can put money to work at the earliest stage and that the returns match the level of exits the region tends to experience.
Pease notes that too much money too soon can just amplify a business model's shortcomings. Also, too much capital can limit successful exits.
Fund I, raised in 2020, made 18 investments. Fund II has made 22 investments and could yield a couple more deals before it is completely invested, said Pease.
Half of Fund II's are in Oregon and about 20% are in the Seattle area. The remaining are elsewhere in the west, with a handful in Vancouver, British Columbia. Two early exits emerged from Fund II: web video chat startup Zipcan, and cremation startup Solace.
While details of those exits aren’t public, Pease said they were both successful deals for Cascade, which already re-invested in one of those founders when it led an early round for Zipcan founders’ new startup WiseOx.
For Fund III, the duo expects to make 20 to 25 investments.
The funding landscape has shifted for both startups and investors as capital becomes harder to find while limited partners wait for exits on past investments that have stayed private longer amid a slowdown in M&As and the closed IPO market.
“I’ve been raising money consistently for 10 years. What’s happening now is people are being more thoughtful about these types of investments,” said Harrelson. “It’s the same on the VC side. Are the fundamentals there? Is this a manager with a good track record. Is the portfolio aligned with my interest as an investor? People are being more thoughtful and careful.”
Harrelson and Pease believe their record justifies further investment. Some 70% of the Fund I companies have met milestones and raised further capital. Two of the companies are running profitably, said Pease.
Cascade has also worked hard to build its network within venture capital, allowing it to help portfolio companies make connections to bigger funds.
While the duo plans to fundraise from some institutions, most Cascade investors are high-net worth individuals. Cascade Seed Fund is a returns-focused investor, but because of its size and regional reach, it tends to attract limited partners interested in becoming active in their communities.
“We activate capital, connect people and spur innovation,” Pease said.
