- John Vrionis, a former partner with Lightspeed Ventures, and Jyoti Bansal, the founder of AppDynamics, have founded a new venture firm that will focus on seed-stage investing.
- The firm, dubbed Unusual Ventures, is meant to be a response to what Vrionis and Bansal see as a breakdown in early-stage investing.
- As its name suggests, Unusual will do things differently, focusing on nascent business and offering entrepreneurs tools and training designed to help them succeed.
Both John Vrionis and Jyoti Bansal have benefitted from the venture-capital business, the former as a longtime investor and the latter as a successful startup founder.
But if you ask them about the industry, they'll tell you that it's broken, or at least a particular part of it is. The industry has a serious breakdown when it comes to funding and nurturing very early, or seed, stage companies, they say.
So they've teamed up to form their own venture firm focused specifically on those types of companies. In the process, they're attempting to do lots of things differently than the typical venture firm. In fact, they think their planned tack is so different that they wanted it reflected in their firm's name, which they are unveiling on Tuesday - Unusual Ventures.
When trying to solve the problems they saw in seed-stage investing, the partners said to themselves, "Let's start with first principles - How can we do this differently?" said Bansal, who founded and served as CEO of AppDynamics before he sold it to Cisco for $3.7 billion last year.
He continued: "Our goal is to be innovative about how to do this and think of it in very innovative, problem-solving kinds of ways."
Seed-stage companies aren't getting the attention they need
The way Vrionis and Bansal see it, two big trends have hit seed-stage investing. There's been a flood of money into venture firms that used to focus on early-stage companies. Because of all the money those firms have in their funds, they're now typically concentrating on much bigger investments. While some still invest in smaller and younger companies, they typically have their attention focused elsewhere.
You can see this in some of the latest data from PitchBook and the National Venture Capital Association. In the first quarter, the median seed-stage investment hit $2.2 million, up from about $500,000 a decade ago.
The other thing that's happened with seed-stage investing is that there's been a growing number of incubators and firms that have focused on startups. But many of these take what Vrionis derides as a "spray and pray" approach, investing in lots of different little companies in the hopes that a few will succeed, Vrionis and Bansal say. Again, though, few entrepreneurs or startups get the individualized attention they need, they say.
As Vrionis, who spent the last 11 years as a partner at Lightspeed Venture Partners, puts it, neither of these models "is optimized for seed-stage entrepreneurs."
Added Bansal: "Someone needs to rethink seed investing in a new way."
Enter Unusual. Although they had lots of interest from institutional investors, Vrionis and Bansal capped their first fund at $160 million, precisely so they could concentrate on making smaller investments in younger firms.
Unusual is focusing on smaller investments and training founders
They plan to invest part of that money in a traditional way, making investments of between $3 million and $7 million in companies that are preparing for major expansions and even bigger investments. But they plan to focus the other part of their fund on helping entrepreneurs take their ideas and turn them into companies with $1 million in annualized sales.
Every six months, Vrionis and Bansal plan to pick six to 10 entrepreneurs to participate in what they call their academy. Unusual will invest $250,000 to $1 million in each of their companies, and invite them to participate in a seminar program.
Over the course of six weeks, the program will offer the founders six classes on the obstacles they'll have to overcome on their way to building their businesses. The courses will be taught by other entrepreneurs who have successfully met those challenges. Among the entrepreneurs who have committed to teaching classes are Mulesoft CEO Greg Schott and DataStax CEO Billy Bosworth.
That may sound like other incubator programs, but Vrionis and Bansal argue they'll be taking the seminar idea to another level for the entrepreneurs in their program.
"These are people who are world-class," Vrionis said. "And the ability for them to pass on what they know, in this high-touch, experiential learning model - I challenge you to find another program that has that level of content or quality."
In addition to the seminars, Unusual will also offer its portfolio companies - both those that are in the academy program and those that are more traditional investments - the ability to use what its founders call the Get Ahead platform. This platform is a collection of services, including business software and support staff.
Unusual will offer companies a chance to Get Ahead
Unusual will have recruiters on staff that will help portfolio companies hire engineers and fill other technical positions. The venture firm will also have sales people who will reach out to potential customers on behalf of portfolio companies.
Additionally, Unusual's companies will have access to software that will allow them to manage tricky tasks such as their payroll, stock options, and benefits, and help them with their accounting.
"We're really, really changing the bar on what help you can get," Bansal said.
Unusual is also plans to take a somewhat different tack when it comes to its investments in its academy companies. Instead of getting an upfront stake in those companies when it invests in them, the firm will get a convertible note.
That note will convert to an equity stake in the companies when they get their next round of financing. Because of the nature of the investment, the stake Unusual gets in each company will vary depending on how successful the company is and what its valuation is at the time of its next investment.
What they're trying to do with Unusual seems very promising.
The nature of those terms allows the entrepreneurs in the program to get money upfront when it's hard to value what they have, because they don't yet have a real company or even a proven business model.
Vrionis and Bansal plan to have their first group of entrepreneurs in their academy program this fall. They're hoping to open up applications in late August or early September.
Meanwhile, the firm has started making its more traditional investments. It's already backed four startups. One of them was founded by Spiros Xanthos, a serial entrepreneur who founded Pattern Insight, which was acquired by VMware in 2012.
Although Xanthos has lots of experience starting and running tech companies, he was excited to have Unusual invest in his latest company, which is still in stealth mode. Xanthos hopes to be able to tap into Vrionis and Bansal's experience and expertise. And he plans to take advantage of Unusual's Get Ahead services.
Those services "are tremendously useful to early-stage companies, even to repeat founders," he said.
He continued: "What they're trying to do with Unusual seems very promising."