For venture capitalists, sound is ironically important. It may be the hardest part of the job, but it’s also imperative to the success of the same job.
So, what happens when the energy around entrepreneurship slows down? Will there be fewer founders taking risks as the downturn approaches? According to Redpoint director Annie Kadavy, fewer companies will be started overall in the coming year than in the past two. And, somewhat counterintuitively, the investor thinks the impending slowdown is “a great thing.”
“In an environment where it’s very easy to pick up a seed round, it’s very easy to get your first product to market as long as you can spend more money on the problem you’re trying to solve …that’s a different risk profile,” she said, “compared to the fact that it’s very hard to raise money, and I have to build those products because I care so much about the issue.”
She added: “I think the total number of founders we’re going to see will be less, but the quality bar is going up.”
Led by Kadavy and managing partner Erica Brescia, the early-stage team at Redpoint Ventures announced today that it has closed a $650 million fund to support startups. The investment vehicle is the company’s ninth early-stage closed fund to date and it will invest in companies from the start-up phase to the Series B phase. The size of the check ranges from $2 million to $15 million, depending on the company.
The company aims to place the majority, approximately 70%, of its investments from this fund in the Series A space, with the remaining 30% earmarked for start-ups and Series B startups. It seeks Series A ownership interests between 15% and 23%.
Brescia, who joined Redpoint last year after being snatched from her role as GitHub’s COO, says the company hasn’t seen much activity from mega-funds like Tiger Global or SoftBank lately.
“The more players you have on the market, especially [last year] tends to push prices up… and now we’re seeing valuations going way down again,” she said. “I think that’s healthier for founders and for investors, and I’m sure that’s partly because we’re seeing fewer players actively pursuing the same business.”
It’s not just valuations that change due to a shift in sentiment; the investor said competition is also changing in startup country, thanks to the conservatism of mega-funds. “One of the things that makes it much more challenging and much more expensive to build a business early on is the number of well-funded, entry-level competitors you have to take down,” Kadavy said. “But if that can be two companies or three companies instead of 10 or 12 or 15, the probability of success, the ability of those companies to hire and retain great people, the ability to continue raising of money, it all up. ”
Brescia added that Redpoint’s product and mega-fund’s product as a venture service look quite different, with Redpoint’s biggest distinction being that the early-stage GP team is all led by former founders. The company did not share its IRR target upon request.
The company’s new capital comes after a wave of hires. Last year, Redpoint, along with Brescia, recruited GitHub CTO Jason Warner. The team also added Meera Clark and Jordan Segall as investors.