If I were to start a fund…

 Richie Hecker Oct 15, 2008

I keep getting asked why I don’t start a fund given my network … now I’m not planning on doing it but I figured I would do a little exercise to see what it would look like .. here’s a few possibilities …

1) Sidecar to invest in companies I found. An incubator type of fund to put in bridge $ into my own companies ($250k-1MM) this is often the hardest amount to raise and most valuable. I would like to have my own little fund available so i can invest once i get to launch phase in my own companies in preferred stock (so $1 = $1). Bootstrap/self fund to launch. Then this money would come leading to a Series A.

2) Outward VC = but it would only be in situations where I can take a founders level stake and in situations where I (we) can provide value beyond money. My greatest value to myself or anyone else should never be my money. If it is, I’m not interested. I would put in $ if we could add equivalent value as a founder and would look for a founders level stake (between 10-50%) depending on what the companies situation is. Investment size would be between $50-500k. It would be either seed, angel stage or bridge to Series A. The goal would be an investment to even it out as providing founders value. (though i would take it in preferred stock) and i would allow the entrepreneur to invest cash in preferred stock along with me. I also like the Founders Fund provisions allowing the entrepreneur to sell some of their stock in each subsequent round.

3) Developers Garage. This is Suli’s idea but i like it a lot. Start with 10 kick ass developers (pay them each a small salary -50-75k), each one brings an idea and gets a small outside budget to work with ($25,000ish). The idea is that every 2 weeks, another idea gets killed and that developer gets assigned to another startup. The goal is to start with 10 ideas and to end up launching 2 sites in 90 days. The structure would be such where everyone has a stake in the overall pool of startups with greater vesting depending on how long your idea lasts and if your company ends up being the one going to market and if it’s eventually exited. Also, the longer you last, the more $ you get to put into the business. This is an American Idol kind of model applied to kick ass developers. I think it could work. I actually made a tv pilot a few years ago that was something like this but that’s a story long buried in the past.

Overall, my value is at the idea/incubation/seed/angel/bridge stage. Once a company is functional and fully funded, they can buy (Hire) people with better networks and better strategy and ideas than mine but before the point of funding, the network and expertise is worth a fortune since the cash isn’t there to buy it. So the idea is to provide the structure to add value where value can be added.

Anyway, what does everyone think of my fund models?

R

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3 Responses to “If I were to start a fund…”

  1. Anthony Argenziano Says:
    October 15th, 2008 at 5:42 pm

    I think this works well for startups in the idea stage or as an incubator (as you mentioned in the post). However, beyond the idea stage, I don’t see many startups wanting to give founder level % at the $50k-$500k investment amount.

    Are you targeting $1M post money valuation? That seems to be what the numbers add up to. Again, I think this works well for idea stage, but beyond that I think the founder would be giving up too much equity.

  2. Mike Ryan Says:
    October 16th, 2008 at 1:21 am

    Hi Richie,

    Some well thought out approaches, let’s discuss during lunch during the Web 3.0 event.

    Mike

  3. Sanjay Mendis Says:
    October 16th, 2008 at 2:54 am

    These are some great thoughts I like option 1. As you know I am planning to setup a out sourced development center with a marketing arm in the US. However non of the VC’s are willing to look at service start-ups. Yes one would say its not a idea one can sell to make a quick out, but there are many successful development companies which can do with a hand to take it to the next level which required marketing and set-up cost. And with the contacts a person like you will bring to such a venture will make it a total success. Also it can help other small ideas to get developed without them having to invest on technology. This company can develop projects for start-ups for a stake in the company and if two succeed every 90 days can you imaging the possibilities?

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