Prioritize ownership over valuation on any given deal, but price drives your portfolio construction. This was basically how we managed Homebrew during its first decade, when we were investing out of three institutional funds, all sub $100m. The guiding principle changed in 2022 given our evergreen personal capital model (as I detailed in Why I No Longer Care About Startup Valuation When I Invest (Except for These Four Reasons)), but it served us well when we were deploying in a more typical lifecycle.

Our strategy for Funds I, II, and III were basically to lead/co-lead seed rounds with a 10-15% ownership target. Our third fund averaged 11.6% but it was really more bimodal – a bunch of 8-12% combined with a roughly equal number of 15% – across 31 startups. The concentration of dollars (expressed in ownership) was primarily about being able to also focus our time working with the portfolio and keeping our funds modestly sized where $1b outcomes could make a real difference to returns.

So our thinking was basically something like this in Fund III [2018-2021, $90m, 31 companies]:

• For any given seed investment target 10-15% ownership for what was then usually a $1-2m cost.
• If the pricing drifted north of that and we maintained our conviction, still favor at least minimum ownership target and go over $2m initial check for it if necessary.
• BUT too many of those and it starts to really impact the number of companies we’d be able to back in the fund. Basically, get too far above the $1-2m range per initial investment and you start to effectively say ‘this investment is better than being able to do 1.5 or 2 other investments.’
• We believed we ultimately wanted 28-34 companies in the fund (and *some* reserves, maybe ~25-30%).

Did we ever say ‘no’ to an investment opportunity based on pricing? Sure, but it was more often a function of the overall round size becoming too big for us to write a lead check, rather than the difference between, say, $1.5m and $1.8m to get 15% ownership.

Much like the Mike Tyson quote “everyone has a plan until they get punched in the mouth,” every firm has a model that then gets hit by reality (aka The Market). You can decide what you put in a spreadsheet cell a year ago is gospel, or you can use it as a guidebook, and behave more dynamically given what occurs over your deployment period. But if you make every investment decision without some framework to understand what it means for the fund itself, you might find the whole becomes less than the sum of its parts.

Footnote: One of the fun parts in backing new venture firms via Screendoor, is talking with them about portfolio construction and seeing the different strategies/playbooks they implement to win.