Print
Email
Print Edition StoriesFriday, January 22, 2010
Volition Capital, Founder Collective focus on stage-specific funding
By Galen Moore
Companies born in the recession
Following the Clean Energy Council Fellows
MHT's Efrain Viscarolasaga: Tech companies may have to wait for stimulus funds
As the dollar size of the venture-capital industry shrinks, VC investors appear to be narrowing their focus.
Massachusetts’ venture economy saw two new firms launch in the past six months, both promising to focus exclusively on a specific stage in a startup’s life. Firms have often staked out industry territory — investing only in life sciences or information technology, for example — but Volition Capital, which spun off from Fidelity Investments this month, is only interested in technology companies already bringing in $5 million to $50 million in revenue. Founder Collective, which closed its first fund in November, looks only at seed-stage technology opportunities.
Founder Collective and Volition Capital join two other recently formed Bay State firms — LaunchCapital LLC and OpenView Partners — that employ similar stage-specific strategies. Nationwide, the list is growing. Three recently formed San Francisco Bay Area firms — Menlo Park-based Maples Investments, Palo Alto-based Harrison Metal Capital and San Francisco-based Baseline Ventures — all focus exclusively on the early stage.
It wasn’t long ago that “stage-agnostic” was a buzzword for large venture-capital funds that sought to deploy capital across startups of every stage. That may be changing, said Bryan Pearce, U.S. director of the venture capital advisory group at Ernst & Young LLP.
Each stage of company growth demands a different skill set, and with fund sizes getting smaller, funds may be choosing to become “boutiques,” rather than “supermarkets,” Pearce said. “It is kind of a different model than what we would have seen traditionally with funds that would have invested across the stage spectrum.”
At Founder Collective, a group of former tech entrepreneurs is taking it a step further, saying they won’t make follow-on investments past the seed stage. That’s anathema to the standard VC model, in which investors re-up again and again to avoid dilution.
“If it’s a capital-efficient business that hits its milestones, it tends to not go back and look for round after round after round (of venture capital),” partner Eric Paley said. “As long as the company does well and it only gets one or two more rounds, we tend to get lift in those rounds. We get dilution, but the value of our shares goes up as well.”
Volition Capital comprises most of the former team at Fidelity Ventures. Spun off in a move announced Jan. 11, the new firm will manage Fidelity’s existing investments and make new bets out of a Fidelity-backed fund of undisclosed size. The firm plans to raise its own fund in 2011.
Volition also looks for capital-efficient businesses, but the firm believes the best time it can invest is once a company has proven its model with its first customers. The new firm has specifically stated it’s looking for bootstrapped technology businesses that have demonstrated revenue.
Partner Roger Hurwitz said that’s simply where the best opportunities are, Volition Capital partners believe. However, the specialized strategy also has a benefit to the way the firm operates, he said.
“Internally to a private equity firm, you want everyone to be completely aligned on the type of deal that you’re looking at. And if one partner’s looking at a $1 million deal and the other partner’s looking at a $50 million deal, does that model really scale?” he said. “We really like the absolute shared vision, shared execution of a relentlessly focused model. We want to be our harshest critic on that.”
Comments
If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.
RSS Feeds
