Grayhawk Capital by Sherman Chu—Venture Capital Profile

What is the background of Grayhawk Capital?

We’ve been around for about 20 years based out of Phoenix investing primarily throughout the Southwest US.  We also have investments in Kansas City and the Bay Area, but mostly we invest in the southern California to Texas corridor. 

I originally came out of Banc One in Dallas. In 1995, I moved to Phoenix to help run the first fund.  Since then we’ve expanded the team.  Brian Burns has been with us for about 15 years now.  Brian Smith joined in the latest fund about four years ago.  We each have 20+ years of experience in the industry.

What do you invest in?

In terms of our investment profile, we are looking to invest $1M to $5M in early growth stage software companies.  For first rounds, we’ll generally come in for $2M.  We invest across various sectors, including healthcare IT, Fintech,   Big Data, Cybersecurity, IoT, and enterprise/business productivity. In Fintech we’ll invest in B2C models.

How big is your current fund?

Our current fund is $70M under management.  We have 9 companies in the current fund with dry powder left for about 6 more deals.

What criteria do you look for in deals?

We like to come in when the company is looking for capital for sales/marketing execution.  We want to see a completed product that is in the marketplace.  Most companies we invest in typically have $1.5 to $2M in revenue run rate all the way up to $8M in annual revenues.

How do you handle syndication?

We’re not a large fund so it’s not atypical that we help round out the raise with a syndicate. We are comfortable leading deals.  With round sizes getting larger, we’ll probably lead fewer going forward.

The landscape has changed quite a bit over the last ten years. We are always looking for new syndicate partners.  In Texas we have looked at deals with S3 and Mercury.  In SoCal, we are working with Avalon and Anthem. Kickstart, Growtech, and Boulder Ventures are regional funds we have worked with.  We have also invested with Bay Area firms such as Trident, NEA, and others.

Most groups offer Innovation Days and other expertise—how about Grayhawk?

A lot of it comes down to chemistry.  Investing in early stage is like getting married.  You have to be really comfortable with each other.  We add value in various ways.  We can help with the capital markets, i.e., if the company needs more equity/debt. We have expertise in the M&A arena. We have on the HR side a lot of connections so we can help fill gaps in the team. We also help with strategic connections and general strategic guidance.