Things We Believe to Be True About Venture Capital (& Homebrew II Raised)

High five! Now back to work. That was the sequence of events at HQ when we closed Homebrew Fund II earlier today.

Two years ago we spent 100 days raising Homebrew I, a $35 million seed fund. Since that time, we’ve partnered with 17 teams solving large, urgent and valuable problems in support of the Bottom Up Economy. Teams with both the attitude and aptitude to go the distance. Teams with long roadmaps in their heads but a near-term focus on doing one thing really well. With Homebrew II, a $50 million seed fund, we’ll continue to work with teams like these to help them build the companies they envision.

When we kicked off fundraising for Homebrew II, we had certain beliefs about how we wanted to approach the development of Homebrew and how that feeds into the fundraising process:

  • Fundraising is about choosing the right long-term partners: Our primary question about any potential LP was always “would they be a great partner for us, and us for them?” For Fund II we have a wonderful base of institutional LPs representing university endowments, charitable foundations and funds of funds. We know that at the end of the day we’ll be evaluated on the returns we deliver to them. But to a person, we feel that they’re in our corner, supporting us and our strategy and rooting for us to succeed.
  • Strategy first, capital second: We want to invest in hyper-growth companies, not be a hyper-growth fund. Homebrew is committed to being the partner of choice for early stage founders. We want to focus 100% of our attention on the first few years of company building. In this funding environment, for both companies and VCs, there’s a temptation to maximize how much capital you raise. We raised less than we could have, but as much as we wanted, given our strategy and approach. Homebrew II is a $50 million fund. It’s slightly larger than our first fund because we intend to deploy entry capital over a 30–36 month period, whereas we invested the initial fund in 24 months. Our sweet spot is, and will remain, playing a leadership role in first institutional financing rounds. That usually looks like a $500k-$1m check as part of a $1m-$3m fundraising. In addition to raising Homebrew II, we’ve also raised a $35 million fund called Moonshine. Moonshine allows us to extend our support, where appropriate, for Homebrew fund investments in future financings, primarily B rounds and beyond.
  • Having money to invest doesn’t make us relevant: Talented entrepreneurs have more options than ever for funding. We never assume that just having money to invest makes us relevant or valuable to the founders we seek to back. Capital is necessary, but it’s insufficient. The ways in which we engage the teams who have chosen to partner with us, in combination with our own product roadmap, are what help us be relevant. With Fund II, we’ll continue to focus on Credibility in the marketplace, Community building amongst our partner companies and Counsel post investment.
  • Best VCs are true partnerships, not just collections of partners: We don’t think of Homebrew as Satya’s investments + Hunter’s investments. It’s with 100% unanimity that we make investments, work with companies and stand behind every company we invest in. Our partnership translates directly to how we’ve structured our firm — equal economics, shared vision and definition of success, no bullshit. We’d proudly sign our names to any word written or action taken by each other and the fund.
  • We have a lot of work to do: Our first two years have gone very well, but it’s laughably premature to clink any glasses. Seed stage venture capital investing is a long road — we do it because you love working with founders at this early stage. Our goal is to not just be successful (as measured by financial returns) but also impactful (as measured by our broader contributions to the community, not just where we have interests). Our fund name is a nod back to the Homebrew Computer Club of the 1970s. A time when the beginnings of the PC revolution found momentum in a group of enthusiasts and hobbyists. Today, with so much focus on innovation and disruption, we tend to only look ahead. But looking back to acknowledge and appreciate that we all stand on the shoulders of giants is just as important in the technology industry. We don’t want to walk away from Homebrew just having made money. We hope to build something lasting that we and our founders can all say we were proud to have been an important part of.

A new VC fund is kind of like a startup, just one that writes checks instead of code. Raising a first fund is a like a seed round, often built on reputation and potential. Second funds are like A Rounds — momentum with some early data. By the B round, startups need to have proven product/market fit. Similarly, our next fund, several years down the road, will be driven by having backed great teams and delivered great returns — not vanity metrics, not retweets, not personal brands. We feel incredibly fortunate to be working with founders who want us to be part of their success, and with LPs who believe we’re able stewards of their capital. Homebrew II is closed. Now, back to work.

Want more of me? I blog at www.hunterwalk.com & tweet @hunterwalk

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You’ll find me @homebrew , Seed Stage Venture Fund w @satyap . Previously made products at YouTube, Google & SecondLife. Married to @cbarlerin .

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