“Philadelphia was an innovation and investment backwater,” but Ajay Raju says it’s headed for venture capital’s mainstream, and he’s personally setting up the partnerships to make it happen, pledges the real estate finance lawyer and chairman of the law firm Dilworth Paxson.
Though it’s home to some of the nation’s oldest medical research centers, the first modern computer, and the state-funded Ben Franklin Technology Partners of Southeastern Pennsylvania, it’s a familiar observation that the region ranks far behind Silicon Valley, Boston, New York, and others as a start-up funding center.
But, perhaps for the first time since the city’s factory-building heyday, “there is no shortage of talented founders with great ideas and road maps who are designing the future,” Raju insists over afternoon coffee in his office, lined with modern art, overlooking City Hall. “From CHOP and Penn, the Navy Yard Business Center, and Nerd [North Third] Street. They need red carpets, not red tape. And they need capital.”
Aren’t adventurous investors scarce? Raju says there are plenty of rich people and enterprises that have made money in the business prosperity of the Obama and Trump years, and are looking for good hometown bets — but they need help finding each other.
So he’s lined up partners to start three Philly-based venture fund groups, each collecting commitments in the tens of millions of dollars.
First is 215 Capital, a “subscription-only Series A pledge fund” whose 100-plus members invest on a “deal-by-deal basis” in “med-tech innovation,” software-as-a-service (SaaS), “eco-tech,” and real estate tech firms with “proven revenues in excess of $1 million.”
To build the 215 fund, Raju is partners with Nooruddin Karsan, founder of HR software maker Kenexa, which Karsan and his investors sold to IBM for $1.3 billion in 2012. “Rudy” Karsan’s firm, Karlani Capital, has lately co-invested with AXA and eBay founder Pierre Omidyar in the fast-growing Ambler-based HR systems maker Phenom People.
Raju says Karlani Capital plus his personal investment group, Indigo Global, have separately invested a total of more than $70 million in venture-backed companies.
Together as 215 Capital, the group raised an initial $5 million in 2017-19, according to Securities and Exchange Commission filings. Its early targets include mobile-customer acquirer Blue Track Media, developer David Blumenfeld’s Cross Properties, and utilities automation software maker Ecosave, which have Philadelphia offices, and hotel software maker Intelity of Orlando.
At Backswing Ventures, Raju is partners with former Cross Properties investor relations manager Jake Weston and ex-Wall Streeters Kyle Asman and Courtney Lawless. Raju said it’s raising a $50 million “sector-agnostic” investment fund targeting firms that “will be profitable within 12 months of investment.”
For Togo Ventures, a “med-tech” fund group focusing on “clinical development and drug discovery, cellular and gene therapies, and patient management and digital health,” Raju has a 50/50 partnership with Christopher “Kit" Dobyns. He cofounded TrialSpark, which started in Philadelphia and moved to New York after raising $80 million (on a valuation of over $500 million) from West Coast giant Sequoia Capital.
Targeting individuals, wealthy families, nonprofit endowments, state and municipal retirement plans, and other big investors, Raju says the initial Togo fund is also aimed at $50 million. The plan is to raise greater amounts,as Philadelphia-based private investment firms LLR Partners and NewSpring Capital have over the last 20 years.
Successful Philly-based firms like LLR, NewSpring, and First Round Capital, which now raise dollars by the billion, have mostly invested far from Philadelphia. There are also smaller funds that have backed both local and out-of-town targets.
Raju said his funds, too, will look farther afield — “We are geography-agnostic and return-devout” — but adds that he feels a “home-court advantage” in Philly, with local “innovators and founders behind the burgeoning med-tech revolution.”
Raju figures more than $1 billion in the last five years has flowed into small and start-up Philadelphia companies from venture capitalists in Boston and New York, San Francisco and Shanghai. So there must be room for locally owned investment platforms and the profits — 2% a year of invested assets, plus 20% of profits, according to Backswing’s rate sheet — that will presumably flow.
It’s easy to invest. It’s a lot harder getting paid back, especially in one of these bubbly periods when there are companies going public and selling stock before they have any products — let alone profits.
“Yes, valuations are inflated at the moment,” Raju agrees. “But we don’t have a fixed time horizon for investment.” Though his investors likely will.