Homebrew began almost a decade ago as the answer to a very specific question, “How can we spend the rest of our careers together, working closely with a small number of founders during the earliest stages of their startups’ development to help increase the probability they create a result they are proud of?” The years (and funds!) passed quickly, delivering the privilege of supporting amazing entrepreneurs, many of whom are well on their way to building this generation’s most compelling, most inspirational and most valuable companies. We get up every day excited to work on behalf of these teams and to try to make a difference for them.
But venture capital is a weird business when it comes to timescales. You’re simultaneously helping startups solve the challenges of that day, that week, that quarter, while also being asked to make decisions about your own investment strategy that will play out over a fund’s lifecycle of 10+ years! When we sat down together in 2021 to plan for Homebrew’s future, the most obvious choice was raising a larger fund with even more capital to invest since that’s the way the industry has moved. But we never started Homebrew to be capital accumulators and have never optimized for assets under management as a business model.
The part of Homebrew we’ve always been clearest about is our operating model: we’re steadfast service providers for exceptional founders and companies. We anticipated that raising too large a fund would introduce conditions that actually work against our goals and values, as opposed to supporting them. If we took stewardship of hundreds of millions more of our LPs’ capital for Homebrew’s fourth fund, we believed we could be successful, but we weren’t 100% sure we could be happy. So we went back to the founding question we asked when starting Homebrew and tried to get clarity on what strategy would best enable us to do the purest, highest impact work for founders. All of that led us down a path that made us equally giddy and nervous. Which meant it was *definitely* the right thing to do.
Instead of staying the course and raising an even larger, traditional venture fund, we’re zigging while the market zags: Homebrew IV(ever) is an evergreen investment vehicle composed, for now, of only our own capital. Going forward, when we commit to a company it gets our sweat, our reputation, and literally, our dollars, behind it.
While the decision to try going evergreen with our own capital was internally-motivated, we believe it’s also well-suited to the evolution in startup financing models. When we launched Homebrew, there was a gap in the venture capital market: not many funds were combining a strict concentration on seed with a focused strategy (portfolio, experience, gravitas) as a lead in those rounds, digging in for the next several years in support of the founders. We packaged capital and counsel together in a manner that was mutually beneficial. And it worked out quite well.
Now fast-forward to 2022. We remain convinced that founders still value capital and counsel. But it’s also true that increasingly, capital and counsel are available, and often demanded, independently of each other. Counsel is sought independent of the size of the check written by an investor, and the best cap tables are diverse collections of operators, strategic capital and institutional dollars. Whereas historically capital was the cost of having the “right” or “authority” to provide counsel, in today’s startup world, it’s clear that the two are often unconnected. Heck, some firms have been built on the notion of a check and no other interaction with the checkwriter!
But that’s not the relationship with founders that Homebrew promises. From our earliest days, we’ve only supported companies where we can put sweat and reputation to work, alongside capital. Of course it’s always in service of, and at the behest of, the founders, and it’s part of what we think differentiates Homebrew.
Our legacy strategy focused almost exclusively on doing this in the context of being the seed ‘investor of record,’ which meant we were working with a small number of founders, beginning at a very specific stage, and then only if the way they wanted to fund their company fit our single product SKU. This was absolutely a sensible and successful strategy for Homebrew I-III, and might continue to be such if we wanted to build Homebrew into a larger institution that scales beyond the two of us. But we don’t.
Instead, now we’re effectively adding new product SKUs, beginning our relationships with founders, still as early as possible, but also more customizable to a company’s stage and needs in a mutually beneficial way. Not limited by check size, ownership targets, fundraising stage, or really anything else. Just a mutual desire to work together to increase the probability, velocity or scale of success of your startup. Whether it’s the first check you raise paired with our ability to then coalesce a seed round around our participation, or the last allocation in a later round that’s closing (or has already closed!), we just want to wire the money and get working on your behalf.
With this new evergreen vehicle in place, we embark on the next phase of Homebrew. So much of Homebrew’s first decade was about asking others to take a bet on us, especially the amazing collection of institutions who committed to us as Limited Partners. They’re all truly our partners, and we’re not only in business because of them, we’re better investors for having worked with them. We know that we’ll be collaborating with that group for many years to come and we thank all of them for their ongoing support into our second decade working closely with brilliant founders building world-changing companies.
Hunter and Satya