After Newth Morris successfully started a company that he eventually sold for almost a billion dollars, he co-founded venture capital fund Ankona Capital in 2019 to help other entrepreneurs realize their dreams.
What’s the biggest lesson he’s learned in the past four years?
“You have to kiss a lot of frogs,” Morris told the Business Journal at his office in Newport Beach.
“You have to look at a lot of companies to find a good one,” he said.
For example, Ankona studied 800 companies last year. This year, it’s examined 400 companies and made only one investment to date.
The firm’s pickiness has earned the trust of its investors. Ankona earlier this month announced the raise of $129 million, roughly double the size of its $66 million inaugural fund, which closed in 2021 and was oversubscribed from its $50 million target.
“The vast majority of investors in Fund 1 came back into Fund 2,” Morris said. “We’re happy where it came in—it’s twice the size of our first fund.”
The firm moved this month into a new office in Newport Center, a 4,500-square-foot space at 800 Newport Center Drive, part of Irvine Co.’s Pacific Financial Plaza.
“It’s world-class office space, a world-class location,” Morris said. “We want to be viewed as a blue-chip financial firm in Orange County. Nothing says that like Fashion Island.”
Ankona, which is Greek for elbow, says it differentiates itself from other venture capital firms by filling a funding gap in the region for growth-stage B2B software companies instead of seed-stage or late-stage buyouts.
Ankona is focused on companies that sell software as a service, also known as SaaS, and have revenue from $5 million to $15 million.
Morris said its initial investment is in the $8 million to $10 million range, with follow-up infusions possible. It typically takes a minority stake of 10% to 20%.
Once they invest, Ankona executives try to help in ways such as focusing on the company’s best customers, and metrics like costs to build products and acquire customers.
None of the investments in the first round have yet been realized, he said.
The key to Ankona’s second-round raise was all its companies from the first round reported revenue doubling and there were no impairment charges, Morris said.
“That was the best thing, that we didn’t have any impaired assets in our first fund as we went to market. Everything was looking good,” he said.
“We’ve always been disciplined in looking at the metrics of companies we invest in. Even in 2021 when there was a frenzy in venture and tech, we didn’t chase stuff. We didn’t do anything dumb.”
Ankona touts its founding directors, including several notable Orange County tech entrepreneurs, as savvy software investors who have previously built successful companies.
For example, Morris co-founded logistics software maker Telogis, an Aliso Viejo-based firm that was sold for $900 million to Verizon in 2016; the prior year Morris received an Innovator of the Year Award from the Business Journal.
Another general partner is Jared Smith, who built software firm Avetta LLC of Irvine to more than 200 employees by helping thousands of customers manage their supply chains.
It was sold in 2018 for an undisclosed amount to Welsh Carson.
Ankona’s two other general partners are Brian Mesic, who was a general partner for 17 years at Santa Monica-based Anthem Venture Partners, which made investments in companies like Truecar Inc. and Google’s Android operating system, and Josh Harmsen, whose résumé includes being an analyst at Ford Motor Co. and Morgan Stanley before becoming a principal at Newport Beach’s Solis Capital Partners, where he worked for a decade.
Ankona also has operating partners who founded companies and who are investors as well.
“They help us source deals and in some cases on the management of the company,” Morris said.
Ankona has made four investments in the second fund, including three made late last year: Bonusly, an employee recognition and reward platform; Alleva, a data-driven electronic medical record and practice management system for behavioral health facilities; Rivet, a healthcare revenue acceleration platform; and VideoAmp, a media measurement and optimization platform.
A Bonusly executive praised Ankona for being nimble earlier this year when there was a run on banks.
“We originally chose to partner with Ankona because of their operational experience and track record as company founders themselves,” Raphael Crawford-Marks, founder and CEO of Bonusly, said in a statement.
“This was tested immediately as we lost access to our capital during the bank run. Ankona immediately stepped up to ensure we could make payroll the following Monday.”
Late last year, limited partners’ private investments began to dry up across the board, Morris said.
“As the economy began to turn, public stocks started to come down and the interest rates rose. The LPs had to rebalance,” Morris said.
“Fortunately, we started early and we got most done before the music stopped.”
Currently, hot investments include those companies able to use artificial intelligence as a component of their products, he said. When Morris started Telogis, the big issue was getting the product to work correctly.
“The trick nowadays is to develop the right product to meet the customer’s needs and sell it. The challenge is now more commercial than it is technical.”
The tech space in 2021 became overheated, causing overvaluations and bloated headcount, Morris said.
“The tech sector has gone through a major recession and we’re starting to come out of it. We’re starting to see an uptick in activity.
“We’re starting to see better companies come to market. We feel it will be a better investing environment going forward.”