Founder Circle Capital, a nine-year-old San Francisco-based investment firm that makes agreements with private, enterprise-backed companies to buy some of the stock options inherent to its founders and employees – so they can buy a house or simply breathe Can a little more easily – closed its latest fund with $ 355 million in capital commitments, taking the company’s total assets to about $ 1 billion.
Not surprisingly, organizations that have more competition than ever before – both by other secondary investment firms, aggressive organizations such as Tiger Global that regularly acquire secondary bets in companies, as well as special purpose acquisition companies that allow companies to Doing very fast and low. The need for early shareholders to withdraw cash through private sales – is also offering a new twist to their business.
Specifically, according to both co-founder and CEO Ken Lovelace and the organization’s lead people, Mark Dempster, Founders Circle is now offering so-called flexible capital to startups. We chatted late last week via Zoom with Lovelace and Dempster about the new fund and generally what they are looking for there. Excerpts from that chat, edited for length and clarity, follow.
TC: This is your third fund. How does this compare to your earlier funds?
KL: We have raised three main funds. This is our third, but we have raised 17 organizations [altogether], Which includes some co-investment vehicles and special purpose vehicles that invest in some of our companies.
TC: And now you’re changing your perspective a little bit. how so?
MD: [We’re now offering] Mix of primary and secondary [investment dollars] and we can [offer these] At any time and in any combination. In [investments] Must not be during a certain [distinct] Round of financing; We can join eight to 10 different investments [tied to the company].
TC: Do you have a debt partner, so you have more capital at your disposal if you need it?
KL: We have a strategic partnership with Silicon Valley Bank, so they are usually lenders to these individuals as they sort out their liquidity. In many cases, we provide an equity backstop.
TC: How has your world changed now that people see a light at the end of the tunnel, with companies becoming publicly traded entities that were not visible in recent years? Do employees or founders share any of their shares more or less reluctantly in secondary transactions?
KL: There has been no significant change. We had a portfolio company public at UiPath that was 16 years old and it would be a long list if you think about how many things changed in your life over that time period. We also had [stakes] In DoorDash and Poshmark, and if you’re in the middle of the time when they were founded and publicly traded, it was close to a decade for both. so [while there is some market receptivity for companies] It is actually two years old or three years old, the average is [time from launch to publicly traded company] Still more than 10 years on average.
TC: There is a competition to buy a lot of outfits for the same stocks, including Tiger Global, which are paying very high prices in many cases. Apart from competing with these companies, I am wondering if you ever sell your shares to them.
KL: We are generally a long-time investor only. We have not sold any secondary shares. We usually catch up through a public offering. We are really trying to focus on companies that can actually be sustainable, decades-old businesses. We obviously will not last long, but we hold on to the public markets.
TC: How long will you hold your shares?
KL: We are not bound [by anything] But what do we tell ourselves [investors] Is that we usually hold for the average of the public offering after one year [then distribute the shares to them].
TC: How, if at all, are you playing this SPAC event? Are you seeing opportunities to jump into those empty check companies before they merge with the brands you are tracking?
KL: We have not directly participated in SPAC, but some SPACs have merged with some of our portfolio companies, which we hope will give a boost to public business. So we have taken advantage [those exits] As a financing tool.
TC: You’ve been at it for almost a decade. How many companies have you supported and how many of them have exited?
MD: We have invested in 73 companies and have exited 31.
TC: I know that you invest at a later stage – have there been any closures due to unforeseen circumstances?
MD: We have closed zero company.
TC: And what about what you’re doing to pay? How has it changed in the past year?
KL: We have just analyzed it and if you adjust for growth, we have not seen a substantial increase in the pricing we paid where prices were pre-pandemic. We are paying the same dollar for a point of development as we were before [COVID-19 struck the U.S.].
TC: Why do you think that?
KL: Companies that have solid unit economics have become better at benchmarking their internal metrics, and investors have become better at understanding those more metrics. Continuity and underwriting by investors is getting better and better.