Inside the AI-related changes at venture capital firm Greycroft
Venture capital firm Greycroft told investors this week that it will refocus its core strategy around AI startups, according to a letter obtained by Axios.
Why it matters: The move is emblematic of the overall VC market, but it also caused internal friction at Greycroft that will result in two longtime partner departures.
By the numbers: At the end of 2022, Greycroft reported having around $5.7 billion in assets under management.
Behind the scenes: Greycroft in April announced that it had raised around $1 billion for a pair of new funds — its seventh early-stage flagship fund and its fourth growth fund — after about a year in market.
- At around the same time, the 17-year-old firm began discussing the AI-centric strategy shift. It will continue to back health care and financial tech startups, but through the lens of what its letter calls "vertical software that is powered by artificial intelligence."
- The change away from sector-based core investing is said to have gone too far for Ellie Wheeler, an 11-year Greycroft vet who focuses on health care, and Will Szczerbiak, who joined Greycroft in 2015 with a heavy focus on enterprise fintech.
- Moreover, both Wheeler and Szczerbiak are New York-based partners, at a time when Greycroft is opening its first Bay Area office to capitalize on local AI talent — including the hiring of a new partner and the expected addition of four other investment professionals.
- Wheeler and Szczerbiak are expected to leave Greycroft at year-end, along with three more junior investment professionals. In its letter to investors, the firm writes: "They are both excellent investors, have been valuable members of our team, and have our full support in what they want to do next."
The intrigue: The pending departures were first reported by The Information, which suggested they were layoffs related to a disappointing fundraising haul.
- It's true that Greycroft didn't hit its ambitious "hard caps," but it did meet targets and raised more than during prior fundraises. It also currently employs more investment professionals than it did at the beginning of the year.
What's next: Greycroft sent the investor letter in response to The Information piece, saying it had planned to unveil its new strategy in November. It writes:
"The AI market today appears to have many similarities to the days of the early Internet. We have opportunities to invest across the entire stack, ranging from technical building blocks to the first commercial applications ... This looks a lot like other software supercycles we have seen over the last 17 years."
- It's also worth noting that Alan Patricof, Greycroft's 88-year-old co-founder and chairman emeritus, recently told Axios that AI is a "bigger and more profound revolution" than gene splicing, PCs, the internet or cloud computing."
Editor's note: Greycroft was an early investor in Axios, although it no longer holds any ownership position. It also invested in Axios HQ, a software spinout in which some Axios employees have equity.