Category Design for Exceptional Venture Capital Firms: Announcing 645 Ventures Fund II, an Innovative Approach to Early-Stage Venture Investing

645 Ventures Raised $40 Million, Oversubscribed with Strong Demand for Fund II

645 Ventures Co-founders and General Partners: Aaron Holiday and Nnamdi Okike

Today, we are excited to share these thoughts more publicly.

  • The rate of new company formation and scaling has outpaced traditional network-driven sourcing of GPs and their teams; Company formation has expanded geographically outside of conventional venture capital hubs and networks;
  • Demographic changes in VC ranks are enabling women and minorities to claim a seat at the table and activate differentiated networks to access a new wave of billion tech companies such as StitchFix and Compass;
  • The rise of alternative funding models and new capital structures for early companies, such as ICOs and AngelList syndicates, have placed a greater onus on VC’s to prove their value.
  • Seed-stage investing historically required large portfolios, with a limited amount of due diligence being possible for each investment. This worked well when there were fewer seed firms, fewer companies started per year, and lower valuations. Today it’s much harder to make the probabilities and economics work for a fund that applies this approach. Our insight is that a smaller portfolio of companies, constructed as a result of deeper due diligence and focused on helping companies reach product-market fit, can generate alpha if managers build sourcing, evaluating, and value-add advantages. This approach accepts the risk of diminished diversification and therefore requires a high degree of conviction for every investment. We are demonstrating that this works at the seed stage. We call this approach slow and precise vs. fast and lucky.
  • Seed-stage deal sourcing does not need to primarily rely on networks any longer, but can also benefit from outbound deal sourcing: a model previously applied at the growth stage by firms such as Insight Venture Partners, where our co-founder Okike was one of the first deal sourcers and helped build their sourcing operation.
  • Because of the reduced complexity to code, faster time to market, and lower cost of building a company, companies are growing faster and generating more reliable data for investment decisions earlier. Our co-founder Aaron Holiday first described these possibilities in 2015, in a TechCrunch article titled Software and Data Are Disrupting Venture Capital Firms. As anticipated, seed-stage companies now have “predictable performance indicators” that can be assessed much earlier than historically possible and can be shared with founders to support their growth.
  • Seed stage value-add practices are usually rudimentary, due to large portfolio sizes, coupled with small investment teams and relatively small fund sizes. The best of the best, such as pioneering seed firms like First Round Capital, have innovated around these limitations through the power of network effects embedded in their portfolio and GP relationships, and through building a platform team. Funds with smaller portfolios can benefit from the ability to concentrate and dedicate more time, attention, and resources to active portfolio companies at the expense of network effects from the portfolio. Additionally, we have built a value-add operation, called 645 Portfolio Operations, that uses proprietary software, research, and our network to support portfolio companies.

“We have been so lucky to count 645 as true partners to the MM.LaFleur team. They are keen operators with a deep understanding of both brand and data. They have advised us on business-critical issues, even preparing research and analysis on our behalf in order to give us a competitive advantage. Their laser focus on our business needs has been a great asset for me and my team.” — Sarah LaFleur, CEO of MM.LaFleur

It is our portfolio founders’ success that gives us the conviction that we are charting the right path, and the passion to provide them with our very best.



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