Arkansas venture capital group partners to form new fund for entrepreneurial investments

by Kim Souza (ksouza@talkbusiness.net) 171 views 

NewRoads Capital Partners of Bentonville has partnered with Los Angeles-based Kayne Anderson Capital Advisors to form Kayne NewRoad Ventures II that will build on the prior success of the two firms’ investments in early stage, technology-based and other growth funding opportunities.

“My NewRoad partners and I are excited about deploying this capital to back high quality management teams and to continue to leverage our combined operating expertise to help create value for our companies and investors. With Kayne Anderson as our partner, this will only accelerate this area of focus for us,” said Clete Brewer, managing partner of Kayne NewRoad Ventures.

Brewer said the new fund’s investment approach is to actively source and make non-control investments in companies with recurring revenues that have proven demand for their products or services, but can benefit from accelerated growth through a direct capital investment and strategic partners who can add operational expertise.

He said the new fund has already received total commitments of $90 million from investors in NewRoad Ventures Fund I, the Arkansas Venture Development Fund, other Northwest Arkansas-based investors as well as Kayne Anderson’s high net worth and family office clients. To date, this second NewRoads fund has already made commitments of $6.5 million to Springdale-based NowDiagnostics, a medical diagnostic testing business, and a Kansas City-based software-as-a-service company in the call center application business.

Entrepreneurial advocates are excited about the potential a second capital venture will hold for the region and state. Arkansas Gov. Asa Hutchinson said the two investment firms have a history of being strong partners.

“We are excited to support this new source of growth capital, which is expected to help drive economic and job growth here in Arkansas and in other capital constrained markets across the country,” Hutchinson said in a statement.

Jeff Amerine, founder of Startup Junkie and longtime angel investor in the state, told Talk Business & Politics that “this is huge for the region and a fantastic step forward.”

“Anytime a local venture group can join up with a with a world class partner with more than 40 years of experience it’s a win. This fills a significant gap for funding among scalable ventures,” said Amerine. “We have done a good job with angel investment networks providing seed money up to $500,000 for several years now, but without growth capital to lend we run the risk of losing some of our startups to other regions who do provide second-stage funding.”

Rick Webb, a retired Walmart executive and advocate/investor in the local startup scene, said the investment work led by NewRoads Capital’s effort to establish a $90 million fund is critical to the continued success of regional leaders’ efforts to establish Northwest Arkansas as an entrepreneurial ecosystem.

“The fund combined with work in growing our startup community, improving the impact of our education system and growing in a strong network of business leader mentors will reshape our community by attracting and retaining critical technology and design talent needed to grow our overall economy and build on our great quality of life,” Webb said.

Serial entrepreneur John James of Fayetteville-based Hayseed Ventures said the partnership is good for the state but the smaller ventures still need more support.

“This fund is a huge step in the right direction and an incredible milestone for the state,  but this deal won’t completely solve the funding needs of the local startup community. Unfortunately, there are very few companies in the state of Arkansas that currently meet the requirements for the $5 to $10 million dollar investments this fund will make,” James told Talk Business & Politics.

James said the “pressing needs” for Arkansas’ startup environment are for $50,000 to $750,000 investments.

“For the state to move forward, we need more active angel investors making $50,000 to $100,000 investments and a couple seed-stage funds capable of writing slightly larger $250,000 to $500,000 checks,” he said.

Amerine said for several years many in the startup arena have sought a major player like Kayne Anderson, but it was the team at NewRoads that took the bull by the horns and got it done, noting that it’s not easy to pull off this kind of partnership in the competitive world of capital ventures.

NewRoads Ventures in its first fund has already helped several ventures with Arkansas roots such as Databank, Hayseed Ventures, GrowthWise Partners, BlueinGreen, Now Diagnostics and Overwatch with capital and advisory needs. Los Angeles-based Kayne Anderson Capital Advisors manages more than $19 billion in assets for institutional investors and high net-worth clients and has been in business since 1984.

“Kayne Anderson is proud to partner with NewRoad, located in the heart of retail, supply-chain and logistics companies and back entrepreneurs in Arkansas, the mid-continent region and other underserved markets. We share similar philosophies and I strongly believe that our combined resources coupled with the strategy of identifying niches where we can bring the combination of disciplined financing with knowledge and direct sourcing advantages sets our early stage fund apart,” Dave Walsh, partner of Kayne Anderson Capital Advisors, said in a statement.

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