June 24, 2013
As entrepreneurs, we often find ourselves prostrated at the feet of a mighty money manager, asking for their holy blessing and term sheet. In our position of humility and reverence, we only see their “consumer facing” side. They snap their fingers and hundreds of thousands of dollars appear in our bank account, saving us from the brink of bankruptcy for another year, until our runway shortens and we make the pilgrimage to beg their favor once again. We imagine that life on the money side is an easy game of power control. If we could see behind the curtain of most of the funds out there, however, we would see a very familiar picture: bootstrapping, hustling, innovating, pitching, selling, and praying.
I recently spoke with a friend of mine, Gavin Christensen, who just closed a second fund for his firm, the Kickstart Seed Fund. As I talked to him about fundraising for a venture firm, it sounded nearly identical to what I just went through with my own company. For example, he said that his first fund’s LPs (think “angel investors”) were a group that “just believed in our team, idea, and investment thesis before we had any traction.” Sound familiar?
His thesis was a novel approach that he describes as the “Money Ball” model of investing. He believes he can identify and invest in undervalued companies by having a focus on an “abandoned” investment stage and a less crowded geographical region. Kickstart is headquartered in Utah, and it invests primarily in the Mountain West. As for the “abandoned” stage, Christensen describes this as more than just a PowerPoint, but “before the kind of traction that most big VCs want to see.” In this sweet spot, he can find great teams that are capital-efficient working on big ideas, and provide them with the support they need to get to the next big milestones and attract further rounds of funding.
Working in this way, Kickstart doesn’t have to compete head-to-head with premiere Bay Area funds for hot companies at crazy valuations. Additionally, given the smaller investment sizes, Kickstart can win big with exits that aren’t as off-the-charts as most VC firms have to shoot for.
Again, Christensen’s story sounds like just another startup. He launched a new product in a new market and then worked like mad to prove out his model before he ran out of money. He did a good job, hit the right milestones, and was able to raise a second fund (think “Series A”).
For the second fund, Kickstart stepped up their game a little bit and tripled the size of the first, while adding a few institutional partners. They’re sticking to their strategy, but will now be able to write bigger checks and participate in smaller A rounds (“A lite”) as well as their traditional seed rounds. What hasn’t changed, though, is their focus on regional companies run by strong entrepreneurs running lean and going after big markets, like the Denver-based Zerista, whom Christensen describes as “scrappy, good guys, tackling a big market, with a CEO that can do it all.”
I’m not sure if understanding the VC world behind the curtain will help you convince a VC to give you a term sheet, but maybe there’s something about seeing how we’re all part of the same game that will help everyone be better friends. At a minimum, you’ll have something to chat about at the next networking event where you’re desperately trying to think of something intelligent to say before asking for a follow-up meeting.
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