Funding success: Santa Barbara Venture Partners closes $25M fund
Local venture capital firm Santa Barbara Venture Partners had a solid run with its first fund. According to the firm, its first fund saw some investments pay off, with huge increases in valuation and even a handful of exits.
Thanks to that success, Santa Barbara Venture Partners was also able to recently announce the closing of its $25 million Fund 2 — a fund that hopefully finds as much success as Fund 1.
“The closing of this fund really means that we have been able to come through the storm of the tech downturn, where a lot of venture capital firms were never even able to raise another fund,” Dan Engel, founder and managing partner of SBVP, told the Business Times.
Engel founded Santa Barbara Venture Partners in 2020. That first fund that was raised was primarily invested in companies specializing in life sciences, healthcare and technology sectors.
SBVP also does a few things differently from other venture capital firms. For one, while many firms hold 100% of their investments through the duration of a company’s lifespan — meaning until it sells or goes public, for example — Santa Barbara Venture Partners embraces locking in profits when it can and trims its position in some companies as valuations rise.
One example given was one of Fund 1’s investments in a generative AI company, which saw its valuation increase from $60 million to $525 million in just three years. SBVP sold 10% of its stake in the company at each step-up, locking in gains of up to 290% while retaining 80% of the firm’s equity.
“For us, it’s a way to de-risk the portfolio and make sure we’re capturing profits as we go, as opposed to holding 100% until the end, which is what most VC funds do. And it’s a strategy that our limited partners have been really, really pleased about,” Engel said.
Keeping partners from the first fund happy is definitely key to the success of raising another fund. Engel noted that, along with that strategy, the fact that Fund 1 has seen a good amount of exits has been great.
Engel noted that while most venture capital firms are barely celebrating their first exit, maybe a few years into their fund, SBVP has seen six successful exits in the five years it has been around, the majority of which are tied to that first fund.
One of those exits was its investment in Santa Barbara-based JackPocket, which sold to DraftKings for $750 million in 2024. Santa Barbara Venture Partners joined the company’s slew of investors in a Series F round, meaning that the payoff was not as great as it would’ve been if they invested in the company at the beginning, but it’s still one of many successes for SBVP, which does not take any for granted.
And even the companies that haven’t sold are still doing well. In total, SBVP has invested in 14 companies.
“And we are unique in that all 14 of our investments are doing well,” Engel said. “That doesn’t mean every single one of them is hitting it out of the park, but a number of them are.”
Engel added that he believes the fund’s decision to invest in companies further along is a big decision as to why the fund does well.
SBVP primarily invests in companies with $2 million to $50 million in annual revenue, growing 75-200% or more and that have outstanding client retention metrics. The firm typically participates in Series A through C rounds, or SBVP buys stock directly from existing founders or other shareholders. SBVP also prefers investments in overlooked geographic markets such as the Midwest and Southeast, rather than Silicon Valley.
“Avoiding hot spots like Silicon Valley, we pay lower multiples for our companies. We avoid that sky-high pricing and competition. We’d much rather invest in somewhere like the Midwest or the Southeast, where there’s much less VC competition and prices are much, much more reasonable,” Engel said.
The firm will use many of the same strategies from Fund 1 in Fund 2. Fund 2 will focus on investing in recurring revenue-based software and tech-enabled companies while still holding to the strategy of generating continuous returns for investors.
According to the firm, Fund 2 has already invested $7.1 million of capital thus far, which has grown to an estimated value of $11.6 million, placing the Fund in the top 10% of performance for all U.S. Funds of its vintage, according to Carta.
Fund 2 has completed several initial investments and has already seen its first successful partial exit — marking the sixth exit for SBVP overall — and rewarding Fund 2 LPs with a 144 percent gain on a portion of one of their generative AI investments. The fund is seeking new prospects and anticipates making a total of nine to eleven investments.
Engel, which has invested in two Santa Barbara companies, said it’s possible some of those new investments could also be in the region.
“But we really are driven by how awesome an opportunity is,” Engel said. “We are opportunistic and so we definitely pay attention to what is happening here and if there is an opportunity for us, we will take it.”
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