Month: January 2015

It’s safe to say that despite less than a full presidential term in existence, venture firm Formation8 has made quit the impact on the industry. With a rock star team, stellar early performance with exits from portfolio companies Oculus Rift and RelateIQ, and now nearly $1B in assets under management, it’s no wonder that they were dubbed by Fortune as the “hottest” venture firm since Andreessen Horowitz. With two successful entrepreneurial ventures in Palantir Technologies and Addepar, along with an executive roles at the Peter Thiel led companies Clarium Capital and PayPal, Formation8 co-founder Joe Lonsdale experience certainly belies his relative youth. Recently, Joe was gracious enough to share his thoughts about entrepreneurship and venture capital at his home in Silicon Valley. On the decision to become a venture capitalist and on raising a $448MM first fund For me it was natural evolution in my career. With the companies I started and worked with, I had an opportunity to work with some really talented people. Unsurprisingly, many of these talented people went off and started great companies of their own. A couple of great examples are PayPal and Palantir, which have spawned at least 15 or so really impressive companies from ex-employees. As people branched off Palantir, I realized that I really enjoyed mentoring these individuals and was fortunate to invest in many of their companies. As I thought about the investing world, it really aligned with where I was already spending more and more of my time. So, it just made sense to start investing and working with founders full time. At the time we raised Fund I, I didn’t realize how large our first fund was relative to others in the market. I just knew that we were going to invest in big ideas and that thesis was going to require certain levels of capital. Also, the fund size allowed us to write meaningful checks alongside the firms we admire and co-invest with such as Andreessen, Greylock, Accel, and Founders Fund. The first fund was really difficult to raise, but we were fortunate to get great LP’s and we were recently well oversubscribed for our latest fund. Why you place an emphasis on companies that aren’t afraid to tackle big, complex problems Well, it’s what I’m passionate about and what I’ve seen in the past.  When I was working at Pay Pal, we met individuals from the Secret Service and FBI and discovered how archaic and dysfunctional their technology was. Many of them actually asked us to interpret data and provide them guidance. After 9/11 happened, we watched the government spend billions building these solutions that were ineffective, broke civil liberties, and had...

Walking into the Homebrew (named after the famed 1970’s hobbyist computer club) offices in SF provides for a very different experience than what would be normally expected from a typical venture capital firm. Amidst rows of desks reserved for Homebrew portfolio company teams, sit Homebrew founders Hunter Walk and Satya Patel.  No opulent Partner offices and no unnecessary frills. Consistent with their operating DNA and Homebrew’s entrepreneur-first mantra, the office feels more like a small start-up than investment firm. Recently they were gracious enough to share with us their thoughts on the early stage venture market, startups, and what makes Homebrew different. Why Homebrew was created At first, we just wanted to figure out a way to work together again based on our friendship and the positive experiences we had together through Google and as co-investors. We realized it was now or never because we’d be consumed by the next thing for a long period of time. The most exciting part for us was starting Homebrew around a theme that we were very passionate about. On the “bottom’s up” economy investing approach At a macro level, there were a couple of key themes that we observed from our personal experience at YouTube, Twitter and Google. First, we saw how technology platforms were fundamentally leveling the playing field. Our view is that as technology continues to get cheaper and more accessible that it allows the “little guy” to finally reap the same benefits that big companies have enjoyed for years.   This will allow for massive advances in innovation in untapped sectors. The second theme we saw was that the work contract between employer and employee had changed. People used to work for the same company for 40 years and earn a pension. Now as we move towards a more knowledge-based economy, entire categories of jobs are going away or becoming lower paying. That’s creating the economic necessity for people to figure out different ways of generating income, monetizing their time, their assets, their knowledge, and their skills. Combining these two themes created the core drivers that serve as the wind in the sails of what we now call the bottom-up economy. There are lots of sources of capital out there but there are very few sources of capital that are willing to be accountable for the early years of a company’s life. For us, that means leading the seed round and taking a board seat when appropriate. Probably, most importantly being willing to roll up our sleeves to help on a day-to-day basis. On why they are transparent in an industry that has historically been opaque I think we’re part of a wave of venture...

2014. An interesting year within venture circles to say the least. From the largest ever M&A of a venture backed company to the rapidly expanding  billion-dollar club to the Micro-VC boom, we saw a little bit of everything last year. Reflecting back on the year, I wanted to share some thoughts and observations of mine specifically around the early stage financing market. I apologize in advance for the semi-ramble as I’m still working out of my yearly holiday fog. As always, I’d love to hear other observations/trends people are seeing in the market. Impact large funds had on the early stage financing landscape. Over the past half-decade, aggregate dollars raised by venture funds have been concentrated across a very small group (~25) of firms in the US. Although companies at the early stage largely remain very capital efficient, large funds that choose to be early stage players (most) must write oversized checks in order to meet reasonable portfolio construction requirements. At scale, it simply doesn’t work any other way. Thus, a typical Series A round from a large firm is more likely to be $10MM-$15MM than $5MM. This hasn’t impacted median/mean A round values that much vs. previous years, but it’ll be interesting to follow whether we’ll experience skew in 2015 Early signs of slowdown within Micro-VC fundraising market. As written about here, the growth within the Micro-VC revolution has been staggering. This wasn’t completely unexpected given the clear funding need/gap between angel financing and venture financing that existed for so many years. The nearly 200 active Micro-VC firms in the US have since filled that gap, and LP’s, appropriately, are now demonstrating massive discretion when placing new bets. Increased emphasis on relevant and tangible value-add by Micro-VC firms. The profusion of Micro-VC funding options, scaling of crowdfunding platforms, and the relative inability to independently provide meaningful follow-on financing has dramatically reduced the utility of firms that do not consistently provide entrepreneurs demonstrable value through introductions & domain/operational expertise. An abundance of early/mid stage financing options for companies at all stages of development and a complete irrelevance of round naming. Below are few common forms of financing that I’ve seen at the Seed/Series A level. – Traditional Series Seed (Angels/Platforms)– 250K-500K; early product, team of 1-3. – Institutional Seed round (small Micro-VC’s) – $500K-$1.5MM; product in beta, team of 3-5, early signs of product traction visible. – Late Institutional Seed round (larger Micro-VC’s or firms like Bullpen Capital/Venture51) -$1.5MM-$3.5MM; product typically generating revenue (for SaaS companies, ARR of ~$500K-1MM), team of 5-7, early demonstration of real product market fit. – Traditional Series A round (Mid-size Venture funds) – $3MM-$6MM. Product/market fit early, but defined,...