They sure don’t make opportunity funds like they used to.
Propelled by the venture boom of 2020 and 2021, nine-figure vehicles proliferated to double-down on star portfolio companies. A combination of low rates and ample limited partner dry powder overheated startup valuations like a dry cycle on a top-of-the-line Maytag. Companies with unproven—perhaps even improbable—business plans raked in cash faster than they knew what to do with it.
The capital influx left LPs clamoring to reinvest in winning early-stage bets. The action peaked in 2022, when leading firms like Lightspeed and Kleiner Perkins raised opportunity funds at $2.26 billion and $1 billion, respectively.
The strategy has since fallen out of favor as the venture landscape has slowed.
David Fleck isn’t complaining. Along with his team, the founder and managing partner of Freeflow, an early-stage venture manager that backs human and planetary health plays, has tweaked the opportunity fund playbook in a smaller, nimbler fashion.
California-based Freeflow recently raised a fresh $35 million via the firm’s Fund Two and an additional $15 million in an opportunistic fund. The latter is designed to provide fresh capital infusions to portfolio companies with upside in a concentrated fashion.
Despite the small size, Fleck told PitchBook exclusively that the vehicle stemmed from Freeflow LPs asking for it. That’s because they found co-investments and special purpose vehicles taxing to keep track of.
Dry capital deployment may take some time, Fleck said, given that it “takes a while” for the firm’s deep-tech stakes to pan out.
“Our LPs, they understand they’re investing in early-stage deep tech, and early-stage deep tech, when we founded the firm [in 2019] was almost a pariah,” Fleck said. “Now maybe because, in some ways, enterprise SaaS has maybe been played out … many people are looking for what is the next big trend in venture, and deep tech has a real shot at becoming part of that story.”
While Freeflow won’t deviate much from its core thesis with the new capital, the idea is to tap the cash to expand from the firm’s Los Angeles base—where it maintains relationships with the California Institute of Technology—to north of Berkeley, what Fleck called the “ecosystem of deep-tech startups.”
The capital raise brought the firm’s assets under management to $90 million, building off a $25 million Fund One and a $15 million SPV. While Fleck and his partners continue to put that capital to work, Fund Two has started investing, most recently in the seed round for Berkeley spinout CatenaBio.
While recent opportunity fund returns may suffer from deploying at peak prices, Union Square Ventures’ opportunity fund family ranked as the top-performing VC fund family since 2000, according to PitchBook data.
Featured image by Dev Images/Getty Images
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