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Seed Capital From Angel Investors: Brian Garrett, Co-Founder And Managing Director, Crosscut Ventures (Part 1)

Posted on Friday, Nov 26th 2010

By guest authors Irina Patterson and Candice Arnold

This is the forty-first interview in our series on financing for entrepreneurs. I am talking to Brian Garrett, who co-founded with a partner Crosscut Ventures, a Los Angeles–based seed stage venture capital firm in 2008. They invest purely in  digital media, such as social, mobile, gaming, infrastructure, and analytics, focusing primarily on companies in Southern California.

Irina: Hi, Brian. Why don’t you briefly start with your background.

Brian: I was born and raised in Southern California, went to Stanford for undergrad and studied industrial engineering. I spent five years working in Silicon Valley with early stage technology companies between 1995 and 2000 and then went back to Stanford Business School to get my MBA.

When I finished in 2001, I moved back to Southern California and joined a venture firm called Palomar Ventures, which is one of the larger local funds here. They have about $500 million under management. I spent about six years investing there.

The issue was it was primarily an enterprise IT–oriented fund in a market where there really just wasn’t any, so we found ourselves chasing deals in other markets.

It’s tough to do well when you’re looking at deals that maybe other firms have already seen and you need to have differentiation to generate those above-market returns.

In 2007, a partner of mine, who was the third GP [general partner] at Palomar, and I left with the thesis that Southern California was an underserved and emerging market, primarily around digital Internet, mobile gaming, and social [media]. We believed there was an opportunity to start a new fund focused on investing in that ecosystem and those opportunities. That’s how Crosscut was born.

Crosscut Ventures is arguably the only seed stage fund focused purely on opportunities within digital media, meaning Internet, social, mobile, gaming, infrastructure, and analytics, in Southern California.

The idea is that since about 2004 or 2005, this ecosystem has evolved dramatically. We’ve had huge successes such as Intermix, MySpace, Rent.com, LowerMyBills, Shopzilla, PriceGrabber and others, probably more than 30 companies.

Those successes breed the next generation of entrepreneurs and the next generation of successes, which is what Silicon Valley has benefited from for 30 years now. We didn’t have that in Southern California between 2001 and 2005. It’s starting to develop dramatically, and a dedicated funding source, I think, is a critical component to help catalyze that innovation and bring the best resources to these entrepreneurs to help them hit their initial milestones and drive the success of the business.

So, Crosscut was started in 2008. We closed our first fund in August 2008 and have been deploying that capital over the past two years, trying to put together a very interesting portfolio of very early seed stage investments that can hit those milestones with that capital and go on to raise subsequent financing from traditional Sand Hill funds.

Irina: What is the size the fund?

Brian: The Crosscut first fund is $5.5 million. It was raised from about 12 LPs [limited partners],  all individual investors who saw the same trends and agreed with our thesis that there needed to be a new fund focused on those opportunities. One of the very unique characteristics of Crosscut is that a good portion of that capital came from that list of successful Southern California tech and media executives who had built all of those successes that I mentioned earlier.

So, we’ve been able to build what we call the “Crosscut Network,” which allows us to cast a net across Southern California and make sure that the best opportunities are either seen by my partner and me or, more likely, by this network of people who are very visible, successful entrepreneurs in Southern California. They see the opportunity and then they hand it off to us to vet and run through our process to see whether we want to invest.

Irina: Are you and your partner the only people who manage the fund?

Brian: Correct. The day-to-day responsibilities of managing the portfolio fall on my partner, Rick Smith, and me.

Irina: What is your geographical focus?

Brian: We are primarily a Southern California–oriented fund for all the reasons that I’ve already described, in terms of the underserved nature of this market and the rising level of innovation and opportunities here.

This segment is part 1 in the series : Seed Capital From Angel Investors: Brian Garrett, Co-Founder And Managing Director, Crosscut Ventures
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