2022 Was The Year We Decided To Not Raise Another Venture Capital Fund. What Happened Next..

When Homebrew Started Investing Its Own Money, The Reaction From Our Venture Capital Peers Surprised Me [Part One]

During the last several years venture firms approached fundraising like trips to an All-You-Can Eat buffet: fast, frequent, and without regards for the digestive impact. As they piled more LPs into more fund vehicles, and then deployed that capital faster than ever, it’s not a surprise that everyone involved is now dealing with the after-effects of a decade-long gorge.

a buffet of money, digital art [DALL-E]

Homebrew was born at the beginning of 2013, and grew itself modestly during the bull market that stretched into 2022. But ahead of the correction we decided to pull forward a goal we’d always dreamed of: going self-funded. That is, instead of primarily investing other people’s money into startups, invest our own. We’d still stay ‘Homebrew’ and keep the same team, but adjusted our strategy to better suit the new strategy. Instead of seeking to own 10–15% of a startup, we’d remove our ownership target and just focus on ‘do we all want to work together.’ And instead of an average check size approaching $2m, we’d scale back to mostly $100k-$500k (~20% of the time larger), in order to make it easier to fit into any round (also owing to the limitations of our bank accounts). For me and my partner Satya this was about creating a sustainable model where we can optimize for working with *any* company at *any* stage, albeit still hopefully as early as possible. So we made the decision in Fall 2021, began investing this way in January, and started talking about it publicly in March. Just as the markets collapsed! Correlation or causation? 🙂 Anyhow, the choice we made was more about to starting to experiment with new approaches to venture rather than embracing or rejecting any single playbook.

The volume of reactions from our industry peers surprised me— notes, conversations, backchannels and so on. Truly I didn’t think people would really care. I mean, we’re a small fund among lots of other firms! Homebrew became either a projection for people’s own frustrations with the venture model or a ‘true north’ for others who were considering similar evolutions but had something blocking them.

A) “Oh it must be so nice to not [x]”

Lots of comments directed our way that were really more just reflections on what the other person’s priorities rather than our own.

“Oh must be nice to not deal with LPs any longer!!!” Not at all. We have a small group of institutional LPs that we really love being in business with, maintain close ongoing relationships with via Homebrew I, II, III (plus Screendoor), and have mutually left the door open to figure out how to put their capital to work together going forward.

“Oh must be nice to retire!” Actually we’re still working the same amount (with some changes in the what and how — that’s coming in Part 2 of this post).

“Oh must be nice to be that rich!” Obviously you need to have banked some dollars, but this comment often came from people who, at least on the surface, live grander lives than I do. What we chose to give up was a bunch of future management fees, etc and then to go into pocket for a few years of investment capital (believing after that carry from earlier Homebrew funds would be recycled into our new model). What we actually might be is more risk seeking.

B) “I want to do this but…”

The most touching conversations were those with other VCs who shared some version of “I want to do this but I don’t have a Satya” [ie it’s lonely to do this by yourself] and “Me and one of my partners want to do this but if we left our firm it would break our commitment to the remaining GPs/hurt the fund.” Turns out there’s a meaningful number of folks who are conflicted about their firm’s growth and want to get back to smaller, personal investing, but are choosing to prioritize their exiting relationships (some with a firm plan to step down after next fund, others with a more noncommittal timeline).

In hindsight I guess I’m glad that people cared. Not because it reflected anything about our place in the industry but rather it showed me there are peers who also want to break out of venture’s self-commoditizing treadmill and create their own models.

In Part Two, I’ll reflect on what we got right and what we are still working on….