ExactTarget Alums Aim Big With Indianapolis Startup Studio High Alpha

ExactTarget helped put Indianapolis on the map as a good place to build a cloud software company that serves business customers. Now, High Alpha—a startup studio/venture fund whose founders include three former ExactTarget executives—aims to cement the city’s status as an enterprise software hub.

High Alpha was formed a year ago and launched publicly in June. The organization has two arms: High Alpha Studio, which conceives enterprise cloud companies, assembles a team around the ideas, and provides services to help them grow; and a separate venture fund, High Alpha Capital, that makes early-stage bets in the enterprise software sector, including investments in the studio’s companies and others located in Indianapolis or elsewhere.

To get started, High Alpha raised $35 million from backers located on both coasts and in Chicago. That’s not a ton of money, but as Xconomy has chronicled in cities like Madison, WI, and Ann Arbor, MI, investor dollars can stretch further in the Midwest than in more expensive tech clusters like Silicon Valley or Boston.

And Indianapolis has the right ingredients for High Alpha to succeed, argues Kristian Andersen, one of the firm’s four founding partners (pictured above).

“Just look at the success Indianapolis has seen specifically in the marketing technology space,” Andersen says in an e-mail message. “Salesforce, Oracle, Emarsys, Return Path, Geofeedia, Angie’s List, etc., all have large and growing presences in the city. There is a significant pool of talent, capital, and expertise ideally suited to helping grow the type of companies that we’re launching out of High Alpha.”

Before forming High Alpha, its partners were already an important source of the area’s tech capital and expertise.

Managing partner Scott Dorsey is the co-founder and former CEO of ExactTarget, the marketing software company sold to Salesforce for $2.5 billion in 2013. Mike Fitzgerald was ExactTarget’s executive vice president of corporate development. Eric Tobias previously started and led iGoDigital, sold to ExactTarget for $21 million in 2012. Andersen founded Studio Science, an Indianapolis design and innovation consulting firm for tech companies. Fitzgerald and Andersen are also the founders of seed capital fund Gravity Ventures.

“They definitely have the reputation of, if you’re a B2B SaaS company, you want to be talking to High Alpha as a potential investor,” says Troy Vosseller, co-founder of Wisconsin startup accelerator Gener8tor, who has visited High Alpha’s offices while recruiting for Gener8tor’s program. “They have deep domain expertise,” he adds.

There are lots of startup studios across the country, such as Betaworks and Human Ventures in New York, Redstar Ventures in the Boston area, 11 Roniin in Chicago, Pioneer Square Labs in Seattle, Expa in San Francisco and New York, and Idealab and Science in the Los Angeles area. Some of these venture-creation firms also invest in companies.

Andersen thinks High Alpha can stand out because of its tight focus on enterprise cloud software companies and its hybrid model of a startup-creation studio and an independent venture fund that can make seed and follow-on investments in the companies that emerge from the studio. “We believe this combination and our focus on enterprise cloud gives us a unique advantage to launch, scale, and transform ideas into world-class enterprise cloud businesses faster than their competitors,” he says.

Sigstr was the first startup to launch from High Alpha Studio. (Technically, it was founded the year before High Alpha was created, but Sigstr launched its service publicly in August and is located in High Alpha’s downtown Indianapolis offices.) Three other existing startups—Lessonly, TinderBox, and Visible—are also receiving support from High Alpha Studio. Those companies were co-founded by High Alpha execs and previously received investments from Gravity Ventures.

Now, the plan is for High Alpha to create around 10 companies over the next three or four years, Andersen says. Three will likely launch this year, adds High Alpha marketing analyst Drew Beechler.

Here’s how the 19-person firm produces companies: High Alpha considers hundreds of business ideas generated by its partners and staff, its investors, outside entrepreneurs, and others, Andersen says. Those ideas get winnowed to three or four that High Alpha will work on in a given year.

High Alpha employees work during "Sprint Week."

High Alpha employees work during “Sprint Week.”

Each idea goes through what High Alpha calls “Sprint Week,” which Andersen describes as a “four-day business design exercise where we focus on building the minimally viable business—including branding, prototyping, and go-to-market strategy.” Sprint Week yields a vision for the company, so High Alpha employees can immediately begin building a prototype and assembling a management team, he says.

High Alpha will then provide a variety of services that the young company needs to expand quickly, like product development, sales help, and human resources and back-office functions. “When these companies start to raise their first seed round or Series A, High Alpha Capital may invest in these companies to continue funding their growth,” Andersen says. He declines to share the typical size of each investment.

Other startup studios have had mixed results, and High Alpha will likely face plenty of potential pitfalls with its model. For one, the studio’s team members must diligently balance their time and resources to support multiple companies at the same time, a challenge that gets more difficult as the startup portfolio balloons. Redstar Ventures, for example, recently limited its focus to building one new startup per year—instead of three—because the pace “was just too much,” co-founder Jeet Singh told BetaBoston.

Andersen doesn’t seem worried High Alpha’s employees will spread themselves too thin. “As companies mature, our time and efforts shift naturally away from the hands-on operating to strategic advising,” he says.

And what’s to stop High Alpha from scrapping the studio and turning its employees’ attention to exclusively building one promising venture? That’s what happened with Boston’s Blade, for example, the former venture studio/seed fund led by Kayak co-founder Paul English. Blade stopped making investments last year in order to work on a new travel tech startup, Lola.

“Yeah, that’s happened several times with startup studios,” Andersen admits. “I guess you can never say never, but High Alpha is not a search fund—we’re in the business of building lots of businesses.”

High Alpha still has a lot to prove, and the Indianapolis business community will undoubtedly watch its performance closely, especially given its founders’ past achievements. But if all goes according to plan, High Alpha will generate impact that goes beyond a return for its investors.

“Our hope is to discover, support, and empower the next generation of tech entrepreneurship in the city (and the rest of the Midwest),” Andersen says.

Jeff Bauter Engel is Deputy Editor, Tech at Xconomy. Email: jengel@xconomy.com Follow @JeffEngelXcon

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