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Stage wants to catch the Series B knife

Illustration: Eniola Odetunde/Axios

Denver-based private equity firm Stage Fund is raising $50 million for its second fund to buy startups that are struggling to raise their Series B rounds.

  • Targeted industries include e-commerce and consumer packaged goods.

Why it matters: About half of the companies that raise Series A never go on to raise another round, but between 20% and 30% are still good businesses, according to Stage general partner Krista Morgan.

Between the lines: Most founders are conditioned to think they need to solve everything with money, she said.

  • Stage's approach is to provide some money and clean up the cap table, giving startups more time to find their footing.
  • It also can provide founders with a meaningful exit, even if not the one originally envisioned.

Example: ThirdChannel, which provides contract labor for retail stores, saw its revenue plummet at the outset of the pandemic and needed to raise more money.

  • Stage saw promise in the fledgling business and restructured it, providing finance, fundraising, and back-office capabilities so Third Channel could focus on selling its services.
  • Stage now is seeking to sell ThirdChannel, which it says is profitable and growing 100% year over year.

The bottom line: There are good companies that won't achieve the exponential growth required by many VC models.

  • But they can be transformed into profitable businesses that are attractive to strategic acquirers, Morgan argues.
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