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Venture Capital Stories – Service Provider Capital

Interview with Phil Gager, Managing Director, Service Provider Capital, New England

I’m Phil Gager, an investor with Service Provider Capital.

Tell Us About Your Journey

I’ve been in and around the venture ecosystem here in Boston for the last 20 years, covering companies in New England as well as nationally in both tech and life sciences.

Initially I was with an asset management firm selling into the audit committee world, so I got to know a lot of the VCs and from there moved on to the direct lending platform at Square One Bank. Which itself was a startup bank, so I have a bit of an entrepreneurial story there. We went public, we were acquired by Pacific Western Bank. I spent time at another banking platform and most recently joined Trinity Capital. In parallel to this, I’ve raised an equity fund called Service Provider Capital, investing in the first institutionally-led rounds of venture-backed companies in New England.

What Inspires And Motivates You?

The entrepreneurial journey, both in terms of monetary value creation, but more importantly, value creation in terms of our ways of life, whether that be life sciences, where I see companies creating innovative devices, diagnostics, molecules. I have less of an understanding of that, but certainly that captures the imagination and it can be something as simple as online daily fantasy sports. That’s captivating as well. So things that impact our daily lives and change sort of how we go about our days.

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What Is The History of Service Provider Capital?

Our fund is the brainchild of my two partners, Jody Shepherd and Noah Pittard, both headquartered in the Denver area. And they came to the insight that their ecosystem of other service providers, whether it be part-time CFOs, attorneys such as Gesmer, auditors, and all the folks that orbit this ecosystem and make their livings supporting VC-backed companies, have a significant impact on the success or failure of those companies. And because of that we’ve got relationship currency that we weren’t necessarily parlaying into access to the cap table.

And their masterful idea was to bring that together in an LPGP structured fund and deploy into a basket of VC-backed companies within a particular geography. So they started the first one in 2014. We rolled out Chicago, shortly thereafter. The Southeast out of Atlanta, and now my partner and I are running the New England Fund, which is now two years into its investment period.

What Attributes Lead To Success?

Service Provider Capital is still a bit in its infancy, so ask me in five years whether this venture fund is a success. I think we will and we have some great early signals of that, but the thing that I think really defines us and our entrepreneurs is humility. We’re not professing to be the Midas Touch investors, although we know plenty of pockets of money that are those Midas Touch investors. What we do profess is that when we put our money in, you get our full attention. And at some point we bring value to that company, whether it be executive search, getting an answer quickly to a 409A valuation, or slotting in the right board member. We want to see institutional capital leading the round.

From there, we participate again, very broadly in the sector. We’ll do 60 to 70 investments out of this current fund. What we want to see is a coachable management team that kind of shows the humility and inquisitiveness that we think every entrepreneur ought to have. And subject matter expertise as well, and the ability to continue finding capital.

What Advice Do You Have For Entrepreneurs?

For entrepreneurs, I think plan for that rainy day, be judicious with your spend. We’re in the middle of what I think is quite a correction and it’s going to be a long winter before we are awash in money as we were nine plus months ago and for the previous seven years.

I think being very thoughtful about how you’re spending capital and thinking about ROI. Where are you spending your time? Stick to your core competency and make sure that your operating metrics will attract that next round of capital.

What Value Has Gesmer Updegrove Provided to Service Provider Capital?

Gesmer, whether it’s Charlie and Steve, have been tremendous in referring us opportunities. Steve probably introduces me to a new entrepreneur every week. And those are not “spray and pray” introductions, they’re thoughtful and they lead to a productive conversation. That’s not to say we do invest in every one of those deals, but it’s a conversation that usually has an action item afterwards. And I think it’s why the Gesmer brand is so well-respected in the market.

Why Go With Gesmer?

The reason why I go with Gesmer is the reps they have at the early stage. They’re working with companies from formation through a multiple series of financings, whether it be equity or debt. And the amount of touches and attention they give their companies is pretty unique when juxtaposed with some of the larger firms that typically are making their money on larger, late-stage transactions.

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