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Nate Raabe: Scoring Private Equity Wins

Nate Raabe knows full well the value of having the New York Jets star quarterback Aaron Rodgers on his team.

The two in 2018 along with Byron Roth, owner of Orange County’s largest investment bank, Newport Beach’s Roth MKM, began a private equity fund, RX3 Growth Partners, where well-known athletes and celebrities invest in consumer products.

“Aaron does help because he’s a great business mind and people respect him,” Raabe told the Business Journal.

The San Juan Capistrano-based firm has raised more than $200 million, including about $150 million in a recent second fund that was oversubscribed.

Its first fund has already had five successful exits, and the firm underwrites its deals expecting returns in the range of three to five its original investment. Exits include Irvine-based Orgain Inc., a maker of protein drinks that’s grown to a valuation of around $2 billion.

RX3’s signature charitable event is a popular flag football tournament that attracts NFL quarterbacks like Joe Flacco, Bryce Young, and OC resident and RX3 investor Jared Goff, as well as Rodgers.

The third annual tournament, held on March 16, raised almost $3 million for charity, about double the amount last year.

Raabe can now add a new trophy to his mantel—a Business Journal Excellence in Entrepreneurship Award, presented before more than 300 attendees on March 20 at the Irvine Marriott.

“Nate is the guy,” Roth told the Business Journal.

“He has a natural ability to work with all these football players and celebrities. I don’t have that ability. I stay away from the athlete side of things.”

“In anything I do, it’s important that I trust the people around me,” Rodgers told the Business Journal. “I trust Nate implicitly—he’s family.”

Linebacker

Raabe, who grew up in Spokane, Wash., played several sports in high school, including football, where he was a linebacker and tight end and captain of the team. He also made it to the state finals in tennis and was a class president.

Through his roommate while attending Santa Clara University, Raabe met Rodgers, who was then a quarterback at the University of California, Berkeley.

“He always knew how good he was going to be,” Raabe said. “He always had this confidence, including in business. It rubbed off on me.”

After college, Raabe went into business with his father, Rodney Raabe, an interventional radiologist who invented VenaSeal Closure to treat varicose veins in a minimally invasive manner.

The pair started a company called Sapheon, where Raabe helped market the product. The company was eventually sold in 2014 to Covidien, which was later acquired by Medtronic.

The medical device giant still uses the logo that Raabe designed for VenaSeal, he said.
When Raabe was raising funds for Sapheon, he asked for an investment from Roth, who turned him down at that time.

However, when Raabe and his wife, Rebecca, decided in 2015 to move to Orange County, where her family lives, Raabe again approached Roth, this time for a job where he ran part of the business.

The Beginning

Over the years, Raabe remained friends with Rodgers, who is godfather to his son. The pair made “one-off” investments in a variety of projects. They found real estate attractive but illiquid.

Rodgers was also keen to invest in companies where his name and time weren’t involved.

After a few years at Roth, Raabe decided to strike out on his own, enlisting Rodgers as his co-founder. Roth also joined as a partner. The name RX3 is a play on their last names.

“I told him how cool would it be to have your own fund after you retired?” Raabe said.

“My goal is to make more money for him after he plays, but he makes it really tough because he keeps getting these huge contracts.”

Their model turned the typical athlete or celebrity endorsement on its head. Instead of a company paying the athlete or celebrity, they buy a stake in the company. Furthermore, the athletes can add value by promoting the products of the companies they invested in.

“By aligning interests in the form of equity, it allows us to be on the same team. The only way we get paid is return on equity,” Raabe said.

“The idea of athletes investing isn’t new, but the structure is. It’s not just depending on one person.”

Athlete Challenges

Sports stars who win huge contracts are often besieged for money by those around them.
“Once athletes make it to the NFL and the NBA, so many hands come out,” Raabe said.

Raabe said it’s important to gain the athlete and celebrity’s trust by valuing their time, not acting as agents or wealth managers, and providing great returns.

“The secret sauce is being investment professionals first,” Raabe said.

“A lot of athletes and celebrities want to be successful at business. A lot of businesspeople want to meet celebrities and athletes. We create an environment where they can meet each other.”

They’ve convinced investors like Buffalo Bills quarterback Josh Allen and retired defensive safety Chris Conte.

RX3’s senior operating partner is Alex Bhathal, co-owner of Newport Beach’s investment firm Revitate and the NBA’s Sacramento Kings.

RX3 typically invests in later stages where companies have more than $10 million in annual sales and are “culturally relevant” consumer brands.

Nowadays, it’s looking to use more artificial intelligence and branch into areas like gaming. In January, it participated in a $30 million investment in Mountaintop Studios, where several employees came from Oculus, the company founded by OC billionaire entrepreneur Palmer Luckey.

“I really think we’re just getting started,” Raabe said. “The most important thing is to generate returns for our investors first.

I think we have a lot of runway ahead of us.”

The Raabe Family Investments

The Raabe family has an unusual structure—both Nate and Rebecca Raabe are professional private equity investors.

Rebecca “is successful in her own right, having run a successful private equity fund,” Jeffrey Verdon, a partner at Falcon Rappaport & Berkman LLP, said when introducing Nate Raabe as the winner of a Business Journal Excellence in Entrepreneurship Award on March 20.

“My wife is always there to support me,” Nate told the audience when accepting the award.
Rebecca is an investment partner in Sprig Equity, which invests in late-stage medical device companies.

It’s raised $30 million with a target of $100 million for its first fund, she said.

Rebecca, who holds a degree in biochemical sciences from Harvard University and an MBA from Northwestern University, spent more than 15 years in the medical device industry, including various strategy and marketing roles in Abbott Laboratories and private medical device companies like Ulthera and Cayenne Medical, two companies that were acquired.

She managed Abbott Ventures’ equity investments as well as developed and executed new franchise strategies for the business. Other Sprig executives also have extensive backgrounds in the industry, including at Abbott Ventures, she said.

“We’re a first-time fund but technically we have a track record,” she said. “We have done this before.”

Rebecca also served as an adviser to RX3 Growth Partners, which her husband started in 2018.

The pair met at a foreign exchange student program in Rome when both were college students in their early 20s.

What was Nate’s winning pitch to Rebecca?

“He’s persistent—he wouldn’t take no!” Rebecca laughed. “At 21, I could tell there was something different about him.

“He was confident, motivated and a dreamer. I’m the one who pulls him down. He’s always reaching for the stars. Of everyone in the world, I’d bet on him.”

The pair now have three children.

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