When you have a $50mm fund with a ‘Seed-stage mandate’ and you’re out there searching for opportunities to deploy capital visibly and quickly, it’s easy to rely upon shortcut ways of finding fundable opportunities. After all, we think that’s a pretty big fund for Seed-stage investing. Some of those short-cuts come through accelerator demo days — show up, listen and cherry pick what you believe are the best of the best.
Another way to deploy capital is through contests and applications. For example, an early-stage venture fund recently launched a contest geared towards UC Berkeley teams, offering $250,000 for 10% of the business. A little math here — that’s a $2.25mm pre-money valuation for filling out a form, uploading a video, and taking a free swing in the hopes you are the one they simply like best.
Will the hot consumer-oriented startup potentially win the contest? Yes, but they’d surely do better raising through a formalized fundraising process to find best-of-fit investors with longer-term aspirations. Will the earliest-stage science-project win? Probably not, but that team will be led along believing that they have potential, and they’ll sing holy praises about the contest as though it’s the marker of a high-potential disruptive technology. Will the enterprise SaaS or B2B-software business with a strong model and product win? Also probably not, too boring and revenue positive to make headlines.
At Bee Partners, we do not practice such tactics. Instead, we work to get to know teams well beyond the demo day or contest, and determine whether there’s indeed a true fit between us and the founding team. If there isn’t, well, off to the accelerators and contests… but if there is, let’s build a true partnership together and support the foundational building blocks of your company. We have a purposefully sized fund (at ~$25mm) that optimizes for the pre-Seed and Seed stage – tweener-funds (Seed-stage mandate funds of size $50mm or above) have to make distorted investment decisions when deploying capital.
Entrepreneurs – we highly encourage you to do your homework on your investors, including observing them do their homework on you. So before you jump into the next contest or accelerator just to win bragging rights and a bit of funding, be mindful about your alternatives. We’ve invested in dozens of Cal-originated companies, at the earliest stages, and we are deeply thoughtful about the cultural and intentional differences inherent to each startup. We’d welcome your consideration as well. Email us at email@example.com or find us on campus — We’re here every week to support the Cal-entrepreneurship ecosystem.