Investing at the stage of company formation is its own special beast.
At the recent Baukunst Creative Technologist Conference, Stephan Ango interviewed myself, Kate McAndrew, co-founder and GP at Baukunst, and Sydney Thomas, Founder and GP at Impressionism Capital*, to discuss the art of investing at pre-seed. Together, we unpacked how different pre-seed philosophies can be, what we each look for in a founder, and the ambitions we have for our respective portfolio companies.
Quick takes from the talk:
STEPHAN: What’s the role of the pre-seed investor?
SYDNEY THOMAS: In the early stages, you are so much more of a sounding board. You're so much more of a mentor. You’re so much more of a grounding force to the founders because everything is changing all the time. That first year is just rocky. It's a mess… And so we try to be the least messy. We try to help the company become what it's meant to be and remove barriers as much as possible.
KATE MCANDREW: What I really love is figuring out - what does this person need from me? Each founder is unique. Where they're coming from is unique. What they're building is unique.
And to give that sense of trust, while also holding (the founder) accountable. I think in any relationship, you want a partner that both gives you the benefit of the doubt and is also going to call you on your shit. That allows you to build trust.
STEPHAN: There are so many more seed stage deals happening today than there were ten years ago. Is the number of great ideas also accelerating or staying the same?
SYDNEY THOMAS: I actually think it's increasing. As the number of venture capitalists increases, it allows for a velocity of ideas to get funded. It allows so many more people to become founders. And not just founders, but become tech founders. People who might not have been able to become tech founders three to five years ago because they didn’t have any connective tissue to someone who could actually invest in them on the VC side.
One of the coolest things about being a VC is that everyone is doing it because they think they see the market differently. Especially at pre-seed, there are a lot of different opinions about what a good company looks like.
KATE MCANDREW: To me, a truly great idea is actually pretty rare. And a team that can bring a great idea to fruition on the 10 plus year journey that it will take to get there is also pretty rare. They absolutely exist. And we have the privilege to work with a lot of them. But I think in the last few years it became very cool to be a founder. And so there are a lot of people pitching things that don’t pass the do-we-think-this-should-exist test. I believe venture capital’s purpose is to find people with really ambitious ideas that require capital in order to build, you know, transformational tools and technology. And I think that that's very different than just a company that needs money.
The current volume (of people pitching) makes it so much harder. You’re hopefully walking up to the haystack with a magnet. But oftentimes, you don't have that. And so the sorting becomes tougher when there’s this volume of people that may or may not be lit up by the thing that they're telling you they're going to commit 10 years of their life to.
STEPHAN: How do you think about second time or third time founders vs. brand new founders?
SYDNEY THOMAS: I'm really biased towards first time founders, because I think they're able to see things unencumbered by a lot of the shit (for lack of a better word) that second time founders sometimes bring along with them.
I also think generally there's a bias in venture toward second time founders. People think, ‘Well, they know the teams to assemble at any given point of their company formation in order to hit some random goal.’ But then you're optimizing from an operations perspective, not a vision perspective.
STEPHAN: There are so many options available for founders in terms of how they raise money. What is the value of a VC in this broadening landscape?
KATE MCANDREW: We have a deep belief that collaboration makes us better. So if you’ve decided to raise money from a VC, it's really about picking the people you want to collaborate with. And I think a big part of why people raise money from this person, or that person, or this fund, or that fund, is they believe that collaborator is going to help them raise their game.
And that is our job, right? Our job is to use capital as a means to build and cement a relationship. And in that relationship, it is our responsibility to help make that company better. And if we don't do that, we have failed, even if we make money.
This interview has been edited and condensed.
*At the time of this talk, Sydney Thomas was an investor at Precursor Ventures. She recently started her own firm, Impressionism Capital.
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