Reach Capital Closes $265 Million Fund V to Support AI Startups

Reach Capital has successfully closed its $265 million Fund V, as announced on Tuesday. The San Francisco-based firm, which has been operating for 11 years, aims to invest in founders developing AI applications that can “expand human potential,” according to Tony Wan, the firm’s head of platform. The fund’s focus encompasses three primary sectors: learning, health, and work.

“We believe AI should serve human flourishing, not replace it,” Wan stated. Reach Capital’s previous investments include notable companies such as Replit, ClassDojo, and Coral Care.

The new fund plans to issue investments ranging from $1 million to $10 million, targeting approximately 50 companies from the pre-seed stage up to Series A over the next three years. As of now, Fund V has not made any investments.

Limited partners contributing to the fund include the Capricorn Investment Group, the Los Angeles Fire and Police Pensions, the LEGO Foundation, and the College Board. In an interview, general partner Jomayra Herrera indicated that the fundraising process went smoothly, allowing the team to secure the new fund in less than six months.

“The vast majority of our LPs doubled down, and we brought on a few new marquee LPs,” Herrera noted. “We attribute this to LP interest in sector-focused boutique funds that focus on conviction-based investments.”

In a broader context, Reach Capital’s new fund is particularly significant amid a fundraising landscape characterized by a barbell distribution. Recent trends show that substantial capital predominantly flows to well-known, large funds and highly focused specialist firms, while generalist funds find it increasingly difficult to attract attention from limited partners.

Relevant analyses from PitchBook and the National Venture Capital Association reveal that established firms secured over 90% of the approximately $62 billion raised by U.S. venture capital funds through May of this year. This situation has left a smaller pool of first-time and mid-sized managers vying for the remaining capital. Reach’s investment thesis, built upon a decade’s experience in edtech and impact investing, aligns well with the type of funds that limited partners continue to show interest in.

Previously, Reach Capital raised $215 million for Fund IV in 2023 and $165 million for Fund III in 2021. A recent exit for the firm occurred in June when Superhuman, a productivity platform now owned by Grammarly, acquired GPTZero, an AI-detection startup co-founded by Princeton graduate Edward Tian. Although financial terms were not disclosed, GPTZero had reportedly amassed over 19 million registered users and $30 million in annual recurring revenue with just $13.5 million raised, with Reach among several investors in the company, alongside Uncork Capital, Footwork, and Alt Capital.