Cheers! Two Valley Product Pros Debut Homebrew, a Seed-Stage Venture Firm.
It’s a familiar adage to drinkers. And lately it’s likely the celebratory phrase of choice uttered by Hunter Walk and Satya Patel, two tech industry veterans who just closed a debut $35 million fund for their new seed-stage venture capital firm, Homebrew. The two position the firm as a small hands-on outfit with a targeted investing approach and an emphasis on providing guidance, strategy and organizational help to nascent startups.
But in a time when Silicon Valley is crowded with myriad angel investors, venture capital firms and accelerators for startups to be drawn to, “bottoms up” is far more than just a toast to Walk and Patel.
It’s an ethos.
That ethos is Homebrew’s founding investment vision, based on what the pair of entrepreneurs call the “bottom-up economy.” It’s a term they’ve coined that describes the proliferation of tools and technological achievement that make it easier for small-timers to gain access to resources previously available only to larger, enterprise-level outfits. Think areas like “software as API” (as seen in telephony company Twilio), direct-to-customer models (e.g., Etsy and 99 Designs) or software-as-a-service businesses.
Translation: Homebrew likes ideas that give the many (or the “bottom”) the ability to leverage technology in order to compete with the few (or the “top,” as it were).
“When you stand for something in the marketplace, that helps entrepreneurs understand where you fit into their future,” Walk said in an interview.Part of that philosophy comes from the founders’ backgrounds. Walk, a veteran of Google for nearly a decade, led product at YouTube, the user-generated video service commonly used by small-time creators to make, market, and ultimately monetize their own content for mass distribution. Patel, also formerly of Google and most recently as VP of Product at Twitter, comes from a family where his father was not only an engineer, but a small business owner, as well.
Another way to look at it: Targeting startups with ideas and models that could benefit the shrinking middle class by turning them into entrepreneurial, independent knowledge workers not only has promising growth and network effect prospects, but also a “higher” social purpose.
“If we’re successful, our goal is not just to generate financial returns for the companies, but a way to help save the middle class,” Patel said.
A lofty ambition to be sure, but Homebrew plans to start small. Bucking against the seed-stage and angel funding trend of spreading money across too many companies, Homebrew plans to make around 10 or fewer targeted investments per year, with a typical investment of anywhere from $250,000 to $800,000. The preference is for Homebrew to lead or co-lead the round, keeping the participants to a small syndicate of angels and VC firms.
The idea here is simple: The fewer investments Homebrew makes, the more time Patel and Walk have to spend giving guidance and feedback to their portfolio companies. And, the theory goes, the fewer investor participants outside of Homebrew that are involved, the better the potential for communication with entrepreneurs.
“We believe it’s in the entrepreneurs’ interest to have investors that have skin in the game,” Patel said. “They’ve been burned in the past — sometimes, when everyone is on call, no one is on call.”That “skin” spreads even to the pair’s workspace, an open-air loft in San Francisco’s tech-trendy SoMa district. The office was virtually empty when I visited Homebrew headquarters earlier this week; an expanse of desks and chairs waiting for new owners. This is where the firm’s portfolio companies will eventually be invited to work and commune, along with other companies run by “friends of Homebrew.” (Homebrew has already invested in “a few” companies, but hasn’t disclosed which ones quite yet.)
It’s a blend, a compromise for the two founders who want to both build and invest. “In many ways, for me, Homebrew was created to allow me to thread the needle between the investing and operating sides of the business,” Patel said. Along with business strategy, the two will also advise on product design and organizational structure as companies begin to grow (the latter especially being quite an important point of contention for both Google and Twitter as they scaled and matured).
Obviously, Walk and Patel aren’t the be-all, end-all advisers to startups. But the two have a host of outside entrepreneur advisers — including growth strategist Andy Johns of Twitter and Quora, Lee Linden and Cory Ondrejka of Facebook, Ryan Graves of Uber, and Kim Scott, formerly of Google and Apple — who have agreed to devote some time to help Homebrew portfolio companies along the way.
The goal is to bring more operators-cum-investors into the fold, making Homebrew a platform for others like Walk and Patel who want to support and invest in entrepreneurs through a more hands-on model.
Bottoms up, indeed.