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Protocol Pipeline
The inside story of the venture capital and startup world by Tomio Geron.

Building a VC firm on content and community

Building a VC firm on content and community

Hello and welcome to Pipeline. This week: how to build a venture firm on top of a community, investing earlier and diversity goals for selecting LPs.

Overheard

  • LP diversity goals: How many VC firms like Alexis Ohanian's have diversity goals in terms of their LPs (in addition to the startups they invest in)?
  • $400 million for $2 million ARR? The new normal. We got into this last week.
  • Going earlier: In response to compressed deal times and more competition, VC firms are scrambling to adjust, one VC tells me. Late-stage firms are doing series A, series A firms are doing more seed — so earlier, smaller deals mean less diligence is required. Or VCs have to be so well-prepared in a sector that they can invest almost on the spot. ¯\_(ツ)_/¯
  • Product please: What are your Stripe feature requests?
  • Timely funding news: This startup raised funding two years ago, and just announced it.
  • Scouts galore: Is there any firm that doesn't have a scout program?

The Big Story

Community as VC firm

Jason Jacobs isn't just another VC who blogs. He built his venture firm MCJ Collective on top of an already-thriving content operation and community focused on climate tech.

Unlike with other firms, the content and community aren't an add-on or something just to help with bringing in deals (more on content marketing below). His firm is a "three-legged stool" of content, community and a rolling fund, done through AngelList. Each feeds off each other. And unlike with other firms, the content and community are not there to fuel the fund — they're their own thing. He started off meeting industry people, then started a monthly email update (which became a Substack newsletter), then came a podcast, then angel deals, then a fund.

  • "What's different with me is the content is not a side to the main dish," he told me. "It's the third leg of the stool. The content and community is not just the marketing arms of the fund. It's objective and independent. How to pull that off is hard to thread the needle. Each is an independent leg of the stool and has a big ambitious roadmap and feeds off each other."
  • The community has a life of its own with 1,200 members (who have to apply for entry) in a Slack channel where he curated a group of operators, founders, academics, activists, government officials and about 20 VC general partners. It's an active group helping each other. "Founding teams started, hiring happened, a bunch of companies raised money, funds got LPs, open-source projects got started, nonprofits started," Jacobs said.
  • Meanwhile, Jacobs has built out his content, including a popular podcast and newsletter.

Jacobs eventually set up a rolling fund through AngelList that invests $100,000 to $250,000 in about six to eight pre-seed, seed or series A deals per quarter. The first quarterly fund was $1.4 million, and the second one is about $1.6 million. Many LPs are from the community.

It helps that people are intensely interested in climate change technology and often willing to help because they care about the cause.

  • Jacobs is one of what seems like a growing number of people who have jumped into climate tech in hopes of addressing what Jacobs says is an "existential threat."
  • After selling his startup Runkeeper to Asics in 2016, Jacobs got into climate investing by trying to learn about it and starting a newsletter and podcast. "I had a wave of survivor's guilt pour over me and thought about how much luck and privilege and timing went into the outcome we had. If any one of the 50 things hadn't fallen into place, it wouldn't have happened. I felt it was my duty to make my next chapter about purpose. Climate was one of the things I looked at."
  • Climate has been a hot area for venture firms, from new firms to specialist energy firms to established generalist firms like Union Square Ventures and Sequoia Capital.
  • Y Combinator put out a request for startups in late 2018 and has since funded 20 sustainability startups, from plant-based food to carbon dioxide capture to carbon emissions tracking.

This new model could work in other verticals, said Hunter Walk, partner at Homebrew, who is a personal investor in MCJ. "Normally you raise the fund and then sprint to build a community — or at least I think that's the 'big fund' playbook," he said. "Now with some of these new rolling funds, or new firms, they started with a community — of common interest, around content or an influencer personality, and then the venture fund is one of the 'products' they build on top."

  • In other incarnations: Jason Lemkin is the guru of SaaS community, content and conferences on which his fund is built; Ryan Hoover leveraged Product Hunt, a startup playground, into his Weekend Fund; and Harry Stebbings built a fund on top of his 20 Minute VC podcast.

But building this kind of community is "a lot of work," said Jacobs, who now has one other full-time person in addition to himself and a full-time intern. "We're quite intentional with it." They do a monthly or quarterly town hall for people to connect, ice breakers or speed networking. He also introduces new members each week in his newsletter and includes job openings for people to help people who are hiring.

A MESSAGE FROM MICRON

Micron

For Raj Hazra, who is senior vice president of corporate strategy and communications at Micron, there has never been a more thrilling time than this golden age of data. In this interview, Hazra describes how "we are now at the doorstep of taking things that we thought were science fiction and making them real, and it's only going to be exponentially faster going forward". Read more from Micron's Raj Hazra.

Inside Track

  • Startups should consider flexible revenue-based funding, says David Teten.
  • Six of the 10 fastest-growing startup sectors in 2020 were pandemic-influenced, per Tomasz Tunguz. Quantum computing, battery, quality assurance and developer APIs were fueled by something else.
  • It's possible to start a biotech company on a shoestring budget, from $0 to $200,000, says Reshma Khilnani.
  • How one startup that couldn't raise funding, shifted its business and story, then raised $1.5 million in 48 hours, as told by Elizabeth Yin.
  • A non-obvious guide to fundraising, and how founders can handle VC negotiating tactics, by Gigi Levy-Weiss.

Need to Know

  • VC marketing: My hot take on Eric Newcomer's incisive deep dive on Andreessen Horowitz: a16z has always and continues to focus intensely on getting its message out.
  • Hims went public via a SPAC. The remote health startup, founded and created out of Atomic, is an example of how a fast-growing startup can quickly go public with a SPAC.
  • Read the small print. Digital bank Chime makes 21% of its revenue from out of network ATM fees, despite touting "no hidden bank fees."
  • Thanks, DOJ. Since Plaid split with Visa, its investors are already fielding funding offers valuing it at $15 billion.
  • Janet Yellen has a cryptic crypto take. Will the Treasury department rein in crypto?
  • From Protocol: Eric Migicovsky, former CEO of Pebble, is back with Beeper, the Meebo/Adium 2.0.
  • This week in VC history: In 2019, after raising $125 million, Munchery fails to deliver.
  • Your weekend reading: Inside a Michelin-Starred chef's revolutionary quest to harvest rice from the sea.

Five Questions With ...

MCJ's Jason Jacobs

Here are a few more interesting thoughts from Jason Jacobs on climate tech and climate tech investing:

What do you expect from the Biden administration on climate technology?

We're hopeful and optimistic this will create a bunch of tailwinds and air cover and supportive policy and just more visibility and awareness. And bring us back as a global collaborator in the Paris Climate Accord. That said, when it comes to investing I would call that gravy. You don't rely on future policy you don't control. Many companies would benefit from more favorable climate policy.

Were people scared off by what happened with "clean tech" in the 2000s?

There's some lingering PTSD from what happened in 2004 to 2007 when a lot of money got set on fire and there was investing in high-profile disasters.

What's different this time?

Whether or not this time will go well, there's no disputing this is a very different shot on goal. One it's just a very different time as many VCs will tell you sometimes it's not the ideas that were flawed — it just wasn't time yet. Sometimes you catch the wave, sometimes you don't.

What about the types of companies this time?

There's much broader climate tech now. And from what I'm able to piece together, hubris comes from the Valley devaluing expertise. They bet big out of the gates without doing small tests and iterating. And it seems equity capital tried to do too much. Infrastructure would have been better if there was project finance or some other sort of capital.

What areas do you focus on, investing-wise?

We're generalists within climate. We look at a wide range of sectors. Anything from consumer to carbon accounting to climate risk to mobility to food and agriculture to battery tech to decarbonizing cement to nuclear. We look at stuff that has venture-scale ambition. Typically we like to invest with institutional investors who can do in-house due diligence when we don't have expertise ourselves. Our goal is to expand that in-house over time.

A MESSAGE FROM MICRON

Micron

For Raj Hazra, who is senior vice president of corporate strategy and communications at Micron, there has never been a more thrilling time than this golden age of data. In this interview, Hazra describes how "we are now at the doorstep of taking things that we thought were science fiction and making them real, and it's only going to be exponentially faster going forward". Read more from Micron's Raj Hazra.

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