By Chris Marks I recently spoke to a cohort of CEOs at GAN’s Scale School about the process of raising a Series A Financing. Everyone in the group had raised seed financing in the past and was focused on follow-on capital. My task was to shed some light on the mentality of a series A investor, and how it may differ from that of an angel or seed investor. An interesting topic. The truth is,...
A little over 5 years ago, I started Blue Note Ventures with a very clear vision of what I wanted to create – a venture firm that backed leaders who aspired to be authentic, self-aware, transparent, humble, passionate and courageous. Even more importantly, I wanted to model those traits in my relationships with the entrepreneurs I worked with. It was not only a plan for a better life, but what I thought to be a powerful investment strategy. I was convinced, based on years of venture investing, that this type of leader would be most likely to attract world-class talent, build amazing culture, and create companies that we could be proud to call partners. While it doesn’t sound like an earth-shattering concept, it was a far cry from the venture world I grew up in, and a significant shift from the reality of VC behavior even today.
At the time, I considered the idea of a partner. While I had been a part of several funds, I had always worked as part of a team. The idea of starting a firm by myself felt daunting. I also wondered whether I needed someone to challenge my investment decisions and push my thinking. What I found, however, was that every time I began talking to a potential partner, I found myself compromising on my vision. This is not a criticism of anyone else, it simply reflects how strongly I felt about making Blue Note Ventures something unique. I knew that staying true to my vision and limiting my investments to those companies that not only checked all the traditional boxes but were also led by aspiring authentic leaders, was going to require a lot of commitment to the thesis. As a result, I decided to move forward alone. Once the decision was made, I never looked back. Somewhere in this time frame, I was talking to a good friend about the tradeoffs of partnership, and his advice was simple, “Why don’t you just build it yourself and see who it attracts. Those will be your natural partners.”
So onward I went, investing in 13 new portfolio companies over the next few years, continually learning and refining my ideas of what it meant to act like, and invest in, authentic leaders. Along the way, I found a group of co-investors that I trusted for deal flow, diligence, and honest feedback. Among those was John Fein from Firebrand Ventures. The first time I met John, we were both in the process of raising our first funds as sole GPs. As we sat at lunch, I was struck by how openly and honestly we discussed the challenges we were both facing in raising our respective funds. We compared notes, commiserated, and laughed about our most interesting pitches. I left that lunch feeling like I had an ally in the trenches.
As we both got up and running, we stayed in touch. We shared deal flow, often sharing opinions and market research on specific companies. The more I interacted with John, the more comfortable I became introducing him to entrepreneurs – confident that he would be supportive and thoughtful in his analysis. Of all of the companies we passed back and forth, we co-invested in four, or nearly one-third of the Blue Note portfolio. While there were several companies that drove different decisions between us, there was a clear overlap in strategy.
When it came time to raise Blue Note Ventures II, I never paused to consider adding a partner. I was pleased with Fund I, what I had learned from the process, and the progress within the portfolio. Things had gone well as a sole GP. Armed with new confidence from the success of Fund I, and a tangible track record to help tell the story, out I went. My vision for Fund II was similar to Fund I – seed stage investments in authentic leaders building transformative companies. The only difference was that I was hoping to write slightly larger checks, lead more rounds and reserve more capital for follow on rounds. All of which would require a larger fund.
Thankfully, my initial fundraising push was fairly successful. Almost all of the LPs from BNV I signed up for the second fund, with a few increasing the size of their investment. As a result, I was able to get to a first close that exceeded the size of BNV I in November of 2019. With the holidays approaching, I didn’t call any capital, and decided I would resume fundraising efforts in January 2020.
The week before Thanksgiving I got a call from John. He was in a very similar place, having just undertaken an initial closing for Firebrand Ventures II and having closed on a slightly larger fund than his first. He too had a vision for a larger fund that led more rounds and made larger investments, and he was well on his way. One of the things I have always appreciated about John is his direct nature. That day he wasted no time in laying out his idea for a combined fund. His message was simple: He was not looking for a partner, and was not talking to anyone else, but if I was interested, it made too much sense to not a explore a merger of funds.
The benefits were obvious. Together, we would have a significantly larger platform. We could handle more deal flow and work more closely with a larger portfolio. We could expand our geographic footprint and our combined network would be far more powerful. But while the idea of merging the funds made a lot of sense, a number of issues quickly surfaced. What about decision making? What about fund economics? What about the LPs we had already closed? After all, neither of us had ever heard of two venture funds merging. With all of the questions on the table we decided to take a few days to think about it.
Despite the distraction of the holidays, the legal challenges, and all of the open questions we had to answer, we had merged the funds and conducted a joint closing prior to the end of January. Sometimes things just work. We are now Firebrand Ventures II.
So, what did I learn through this process? I learned that partnership does not mean compromise. In fact, if partnerships are built on shared values, then they can lead to collaboration, synergy and opportunities to grow in ways that would not otherwise be possible. And that is what John and I had as our foundation: a shared commitment to operating with integrity, transparency and serving the entrepreneurs we work with. With that foundation, the rest of the issues became inconsequential. With that foundation, our LPs were excited to get on board. And with that foundation, Firebrand Ventures II can be so much more than what we could have built on our own. Here’s to our new partnership, and here’s to the future!
Link to Firebrand Ventures.