Announcing Homebrew III: Finding our product-market fit

February 12, 2018

We started Homebrew nearly five years ago because we saw a gap in the venture financing market. While there are plenty of sources for seed stage capital, there are actually very few firms focused exclusively on the seed stage AND who sign up to be the investor of record - putting not just dollars, but also sweat and reputation behind a small group of companies to help them lay the foundation for scale and success. We designed Homebrew to be a product that met this gap in the market. Since then, we’d like to believe that we’ve achieved product-market fit, providing capital and counsel to 35 founding teams during the earliest stage of their startups’ development. We’re privileged to continue serving our customers (founders!) into the future with the raising of Homebrew III, a $90 million fund.

Like our earlier funds, Homebrew III’s strategy is to concentrate capital, time and reputation behind 6-8 new investments per year and to work closely with those teams to help them build the companies they envision. All of our Homebrew II Limited Partners, a small group of institutional investors including nonprofit foundations and university endowments, renewed their support for our work. And that work continues to be done in a deliberate, hands-on manner by Hunter, Satya, Beth and Charo.

What we look for when we invest

We’re proud to support a group of companies that we believe represent the best of the tech community. These companies are being led by men and women who care about both what they’re building and how they’re building it. They’re comprised of teams with clear visions for the future and both the attitude and aptitude needed to get there. Founders who are disrupting their industries with love and empathy rather than contempt. Homebrew companies operate across a diverse set of markets, including financial technology, AI-driven software, marketplaces, autonomy, agriculture and aerospace, where the common thread is technology democratizing access to information, products and service, customers and revenue. We refer to this notion as the Bottom Up Economy - the idea that as technology keeps getting cheaper, more flexible, more accessible, it can be increasingly leveraged by constituencies and industries that historically haven’t been able to take advantage of it. The past five years have given us plenty of proof that this trend is just beginning, with autonomous cars, cryptocurrencies and disease prediction software being just a few examples.

Homebrew is a product with an unambiguous point of view. We have strong beliefs about what it takes to set up companies for success, including everything from boards to equity compensation, and we attempt to share them transparently. There are three key attributes of our product that are manifestations of those beliefs.

  • We’re seed phase (not seed round) investors: There is no longer a singular seed round financing. “Pre-seed”, “Post-seed”, “Pre-A” are all terms that are thrown around but have largely lost their meaning. The reality is that there are many ways in which a company can finance its development. Homebrew’s product is meant to meet the needs of founders at any point during this “seed phase”. We’re in the business of taking risk, investing in ideas alone, early products in market or promising customer traction. We can provide the first dollar that’s ever raised or the last dollars before a larger Series A financing. Our goal is to meet founders as early as possible and to be their investor of record, making a meaningful commitment of capital and counsel during the first few years of company development. We don’t create rigid structures around their fundraising tempo. Instead, we work with founders to help evaluate when additional capital will help them accelerate and what additional risk it brings to the business. Some of our most successful companies have received two or three checks from us before raising their Series A. We are seed phase investors, taking the associated risk independent of check size.
  • We work hard to win the deal and even harder to service it: We do everything we can to earn the opportunity to work with founders. Founders’ time is always valuable, but especially so when fundraising, so we proceed with urgency and conviction in any discussions. Our hope is that anyone who takes funding from Homebrew does so because they think we’re the best partner for them and because we’ve given them a sense of what it’s like to work with us during the investment process, not just pitch their business.

    The commitment we make pre-funding, pales in comparison to what we do after wiring the money. It starts by devoting the majority of our working hours to supporting the founders we’ve backed, always making them our first priority. Our job is to increase the velocity of their learning and the probability of their success by making their problems ours to solve as well. The way we work with founders is codified but customized based on their needs, the stage of the company and what’s urgent for them in the moment. And if we could be doing something better or differently for them, we cherish receiving feedback and moving quickly to iterate.

    And importantly, when founders are ready to go to market for their next financings, we’re right at their sides, just as we’ve been the whole way. Because we make a small number of investments, and continue working with those companies past the Series A, we’re able to provide meaningful fundraising guidance and very warm introductions to potential investors. These venture investors, corporate strategics and individual angels trust our assessments, appreciate our early involvement and are excited to talk with teams we believe are special.
  • We’re building something we can be proud of: Startups - and venture funds - have long paths towards success, and there are many ways to measure progress. Early on, we view the rate of learning and iteration as important predictors of success. At some point, a set of core metrics and financial milestones get introduced. And ultimately, the reward of financial liquidity comes for founders, their teams and their investors. But Homebrew also looks for one more measure of success. Can founders answer yes to “Are you building something you’re proud of? Will this company be on your tombstone or just your resume?”

    We ask ourselves the same question about Homebrew - are we building something we’re proud of? This question isn’t just a framing tool or conversation starter - it’s a true north for us. And for us, the answer to that question comes down to the people we choose to work with and the relationships we build with them along the way. The regular conversations we have with the teams we’ve backed aren’t just founder to VC conversations, they’re people to people conversations. Those conversations need to take place not just when all is going well, but also when things go awry. We want to be the first call in good times and bad. Immediately after we invest, it’s our goal to earn founders’ trust and exceed their expectations so those conversations can be had. Companies may come and go, but our relationships with the people we back will endure. Pride in those relationships defines our pride in Homebrew.

    While it’s still early and there’s lots of work left to do, the answer to are we proud of what we’re building is an unequivocal “Yes!”. It’s true only because of the support, partnership and love of others. We offer the deepest gratitude to the founders who’ve elected to work with us, the LPs who’ve entrusted us with their capital and the industry colleagues who’ve so openly collaborated with us. To our families - Addie, Astrid, Caroline, Chris, Jackson, Jaime, Marc, Siri, Syon - without whom none of this would be possible, we give our love and thanks for allowing us to fully integrate our home and work lives, helping us be better investors, spouses, and parents.

Homebrew III is closed. Now, back to work!