Blake asked for a follow-up to my post on the two deals we lost in 2013. Thanks for bringing up such painful memories!
2014 was a great year for Homebrew (or at least I *think* it was – check back in 10 years and I’ll tell you definitively). Bunch of new companies (currently 17 core investments) and five of our earlier startups raised additional financing. We also felt really good about the conversations with founders – “dealflow” = life blood of any investor. But rather than just viewing it as transactional, we approach it as a mutual decision where founders and Homebrew are trying to decide if we’d be great partners. In 2014 we didn’t have any traditional losses but we did see “piggy rounds” impact our ability/desire to work with founders in three instances. (Piggy rounds are what I’m calling a single investor doing the entirety or majority of a seed round. Here’s why I think they’re occurring more frequently.).
In two cases we wanted to invest somewhere between $750k – $1m as part of a ~$2m seed round, but the founders went with a single firm committing ~$1.25m – $2m (in one case it was a seed fund, in the other a larger multistage VC). We believe in strong syndicates for seed stage companies – getting a good coalition of investors around the table matters. If an entrepreneur is worried about just getting money in the bank, we’re willing to consider closing on our lead check prior to rest of syndicate coming together. That’s what being a ‘partner of conviction’ means. But I don’t anticipate us ever doing 75% of the round ourselves when total raised is >$1.5m.
In one case, two firms paired to turn a seed deal into a “direct to A” – we were looking to lead a ~$1.5m round (at ~$6m pre) and it turned into a $4-5m raise at ~$18-20m pre. While we had a lot of respect for the entrepreneurs we didn’t feel those levels were right for us or where they were in their business. Companies which raise too much too early might think they’re de-risking their funding but also may intro a host of other issues (separate blog post).
In 2015 I believe we’ll continue to spend more time ensuring that we’re meeting great teams early rather than worrying about competition – ie limit deals not seen vs concern re: competition.