As a new seed fund you might imagine Homebrew hustles to incubator demo days, taking notes and then chasing down founders to make an in-person connection. Nope. If you see me at a demo day, it’s likely to show support for the incubator itself, not to discover the Next Big Thing. Why? Because if I’m meeting a founding team for the first time on demo day I messed up. Given Homebrew’s commitment to go “all in” for our founders (leading financing rounds, operational guidance) and our fund’s thematic focus (the Bottom Up Economy), if I’m doing my job we’ll have found one another earlier, even if fundraising activity hasn’t begun.
It’s not because I want a sneak peek, or to try and pressure you into taking money before you have the chance to make a market. Rather I’m hoping we can see how each other work, maybe even work together by hopping off a whiteboard to talk through a design issue, product strategy or distribution hack you’ve been struggling to solve. I’m more interested in the way you think, communicate and lead, than your Keynote pitch skills. A termsheet should be just another milestone within a long relationship. When you talk with Homebrew, we don’t act one way before we wire you money and different afterwards.
Some founders (or incubator founders) will read this and raise an eyebrow, assuming there’s a hidden agenda on our part, or that there’s signaling risk in talking with investors in a staggered fashion. Maybe insisting that the unveiling of a company and subsequent funding auction yields the highest valuation. I realize that in aggregate some of these statements may be true (well, not the hidden agenda part). Thankfully we don’t want to invest in the aggregate company. And we have no problem being part of competitive/collaborative fundraising efforts. You want to kick off your raise on demo day and close quickly to create urgency? No problem, we’re excited to support that but the probability of our participation increases dramatically if we’ve had the chance to see you develop as a company and know that you too have had the opportunity to get to know us.
Making 10 or fewer investments each year gives us the ability to look for opportunities where there’s great culture fit between Homebrew and founders. Deal terms matter but people matter even more. We want to work furiously to help mission-driven founders build the companies they imagine. Ones that last a long time.
Aside from our model and ambitions, I’d suggest that if you’re in an incubator, early on identify a handful of funds that you want to get to know better. Funds that are likely to lead or otherwise participate in your seed round. Express that interest and spend some time together before you hit the stage with your ‘up and to the right’ graph. At the end of the day do this not because it’s what investors may want but because it will help inform your decisions.
So see you at demo day, but it’ll be sitting in the first few rows giving you a thumbs up for the progress you’ve made, not leaning over to the person next to us asking “what was that company’s name again?”
“Wow, that’s like best of both worlds for you. Investing other people’s money and getting to work on a bunch of cool products.” I heard this pretty often as I started to tell friends and former co-workers about Homebrew, our seed stage venture fund. While our experience and passion around product design will hopefully be a major reason entrepreneurs want to work with us, “best of both worlds” isn’t just the wrong way to look at becoming a VC, it’s actually harmful for both the investor and entrepreneur. The entrepreneur should be building the company they want to see exist and the investor should be assessing the entrepreneur’s capability to do so.
My first year of angel investing I fell into classic “operator turned investor” traps. During pitches I’d get excited about a company because I could imagine how I’d go about solving the problem identified or the product described. Instead I should have focused on the founder’s understanding of the problem and how they were going to solve it. Many times when working with a team my advice would often sound like “well here’s how I would do it…” That’s fine but only a B+ answer. What’s way more valuable is to understand the capabilities of the team, help them establish the framework within which to make a decision and then guide them towards execution. As I spent several more years investing and advising I was able to self-correct these tendencies and become more valuable to companies.
With Homebrew I knew I was making a distinct choice to become a product-centric investor, not a player-coach. My goal is to invest in strong exceptional teams who have the ability to succeed on their own, and help them increase the probability, scale and velocity of that success. And we intend to do that via our own time, a strong group of entrepreneur advisors, the right co-investors, the broader Homebrew community and a set of other ideas we’re still, uh, brewing.
I’m a tremendous believer in the value of operators turned professional investors (duh) but it’s perfectly legit for a founder to ask these investors “I respect what you were able to build but help me understand how you intend to translate that experience into helping me build the company, the product, the team and the culture that I want to build.” The best answers will be centered on growing your capabilities, not touting theirs.