Inside Reach Capital’s EdTech-Powered Returns

Reach Capital's Strong Performance in Edtech Investing

Reach Capital, a venture firm situated in San Francisco and established by Jennifer Carolan and Shauntel Garvey, initially concentrated its investments solely on edtech before the sector experienced substantial growth and the emergence of numerous unicorn companies. The firm, distinguished by its female leadership, finalized its third fund in February, securing $165 million – its largest fund to date.

Fund Returns Demonstrate Success

Data reveals that Reach Capital’s early investment strategy within the edtech space is yielding positive results. The firm’s second fund, totaling $82 million and closed in 2017, achieved a net internal rate of return (IRR) of 72.1% as of the second quarter of 2021, as indicated in information provided to Limited Partners and reviewed by TechCrunch.

This fund included investments in companies such as Paper, Winnie, Handshake, and Outschool – the latter two of which have since attained unicorn status. Its performance surpasses that of the top quartile of funds established in the same year by several percentage points.

Comparison to Industry Benchmarks

Cambridge Associates data shows that the top quartile of funds from the 2017 vintage year had a net IRR of 47.64% during the same period. However, Reach Capital’s initial fund, launched in 2015, did not achieve the same level of success, falling short of the top quartile performance for its vintage.

Understanding the Returns

It is important to note that a significant portion of the returns from Reach Capital’s second fund are currently unrealized gains, meaning the IRR is based on increased company valuations. Given the firm’s focus on subsequent funding rounds, the IRR represents a specific point-in-time assessment of performance.

Recently, Reach Capital experienced its first cash exit with the merger of portfolio company Ellevation and Curriculum Associates, but this transaction is not yet reflected in the reported data.

Key Investments Drive Growth

The improved performance between Reach Capital’s first and second funds can be attributed to several rapidly growing startups. According to an impact report, Reach II allocated $32 million to 14 core investments, including Newsela, Handshake, and Outschool – all of which have exceeded a billion-dollar valuation and achieved unicorn status.

Furthermore, the fund invested in Paper, which recently secured a substantial nine-figure funding round led by IVP. Early investment in these companies, coupled with the overall boom in the edtech sector, has validated Reach Capital’s investment decisions.

Diversity Within the Portfolio

While Reach II’s portfolio demonstrates greater diversity than industry averages, founder demographics remain skewed. Approximately 74% of the investments are led by male founders, while 26% are led by female founders. The report also indicates that 62% of founders identify as white, 20% as Asian, 14% as LatinX, and 4% as Middle Eastern.

Notably, there are currently no Black founders represented within Reach Capital II’s portfolio.

Industry Perspective on Returns

Reach Capital’s strong returns are occurring during a period of overall growth in the venture capital landscape. Several investors and founders, speaking anonymously, provided context regarding the impressiveness of these returns for a seed-stage fund of that vintage.

One investment strategist described the return percentage as “crazy good,” placing it easily within the upper quartile and potentially the upper decile of performing funds. They added that such returns would be considered more commonplace within the cryptocurrency investment space.

Another seed-stage investor referenced a recent blog post by Fred Wilson, “Cash on Cash vs IRR,” highlighting the potential for holding periods to influence fund performance data.

Future Growth and Expansion

Despite these considerations, Reach Capital’s returns provide valuable insight into the performance of one of the most diverse partnerships in venture capital within a revitalized sector. This momentum is evident in the firm’s ongoing fundraising efforts for a $50 million opportunity fund.

Reach Capital has also been actively expanding its team, recently welcoming Jomayra Herrera from Cowboy Ventures as a partner and Tony Wan from EdSurge as head of investor content.