After four years co-founding the firm, I recently decided to leave my role as a partner at CoVenture. I continue to count everyone there a friend, and my decision was made after much discussion with the team. Over time, our business has shifted – our Credit and Crypto business lines have grown and continue to attract more capital, while we decided to slow our new venture capital investment activity and are not raising a new dedicated venture fund at this time. Because my focus was on our venture investments, it made sense for me to transition out in the wake of these changes.
I remain committed to our investors and portfolio – I remain on the CoVenture board and continue to advise the companies in the portfolio – but have stepped away from my day-to-day role. I am also excited about the prospects for CoVenture – the Credit, Crypto, and potential future business lines and the team behind them.
The decision to move on was not easy, but deciding to stop making new venture investments was even harder. Venture capital was our first business at CoVenture. Specifically, we tried out a new model for VC: investing in new start-ups with our own “sweat equity” – we designed and built software products in exchange for stock. Later, we also invested cash in our portfolio companies. We set out to prove that we could make smart investments in this way, and that we could help our companies move faster from founding to first customer. We are excited about the portfolio we constructed, which includes some companies that are already stand-outs, such as KidPass, Produce Pay, Lightyear, Good Uncle, and others. That said, as we invested our venture funds, the early-stage market shifted, making it harder to invest in great companies on fair terms with our software-for-equity strategy. Moreover, we learned that our service-focused investment model is more difficult to scale than anyone anticipated.
One of the first tasks of any startup is to get a product to market and to seek “product-market fit.” We approached our business the same way, and quickly found a sizeable pool of founders interested in trading equity for product development. Ultimately, we would go on to review thousands of investment opportunities and to make 40 investments, the vast majority through a combination of development services and cash, many of them listed here. We deployed three small funds in this way.
As we began to try to make more of these investments and to consider raising larger funds, however, our new model would not scale. Each engagement was unique and required not only engineers and product managers but oversight of many human factors. Perhaps the biggest challenge: it’s very difficult for a founder to develop trust and rapport with a “consultant.” Developing a new product inevitably involves failure – bugs, unforeseen user errors, long feature backlogs. When an “in-house” development team, perhaps a technical co-founder, experiences these failures, most founding teams rally together to get over them. When a founder experiences these failures while working with a consultant, the tendency to blame the consultant can be hard to resist. This is not to say our work was perfect – far from it – only to say that it’s hard to find perfection in the world of new product development. But developing trust as a consultant took real time and focus with each founder.
Once that trust was developed and we built out the product, our companies needed help to ensure we transitioned our product teams out as smoothly as possible. This process also took time and, in some cases, effort to help recruit full-time replacements for the resources we had been temporarily supplying to companies.
Additionally, we found fewer economies of scale in our own team than we had hoped. Our product team did a laudable job of capturing and implementing best practices based on our experience with this new model, making each new project smoother and better. But, ultimately, we found that each new product needs about the same time and attention from developers and product managers as the last one, and from similarly high-caliber people.
Finally, the world did not stand still as we put this new investment model to the test. The early-stage funding market evolved: attractive new companies began to raise more capital on day one, reducing the attractiveness of the software-for-equity trade we offered.
In the parlance of the various stages of product development, we did find early product-market fit and, we believe, validated our initial value hypothesis. We were able to find and work with exciting companies. But as we worked to develop a growth hypothesis, we could not make our own business model grow using this style of venture investing.
I’m happy to have had a hand in our experiment with a new venture capital model at CoVenture, and to have had the opportunity to help assemble and work with our team and our portfolio. There are, of course, other organizations pursuing similar investment approaches: Expa, Human Ventures, betaworks, and others. I admire each of these firms in different ways and will not be surprised if one or all of them is very successful over time (some already are). I hope this summary of the results of our experiment is helpful to them and to other entrepreneurs in their journeys.
