Most of the action in venture capital now is in so-called growth rounds, with billions of dollars flowing into established technology superstars like Uber and Pinterest.
But Kleiner Perkins Caufield & Byers, one of Silicon Valley’s best-known investment firms, is trying a different approach: focusing on early-stage seed rounds — and offering founders unusual terms.
The firm announced on Tuesday a new $4 million fund, called the Edge Fund, that will essentially lend entrepreneurs up to $250,000. The Edge Fund will also supply founders with an array of services, including technical programming help, recruiting and operational expertise.
In many ways, Kleiner Perkins is treading well-worn ground. Many of its competitors have long provided seed capital, which is often the first outside money that start-ups raise. And some other firms, like Andreessen Horowitz, have also provided their portfolio companies with additional services.
But the Edge Fund is pitching itself as a particularly friendly way for founders to raise capital while allowing Kleiner Perkins to make new, smaller types of investments that its previous funds were not set up to make.
In an interview, Anjney Midha, a partner at Kleiner Perkins and a founding partner of the Edge Fund, said that the traditional venture capital structure did not permit this kind of approach. In particular, founders don’t get as much help as they need.
“I can’t think of any other group in venture capital doing this,” he said.
The fund will give entrepreneurs a final decision on investing within 72 hours of an initial meeting.
Perhaps the most unusual feature of the new initiative is that it will not take standard common shares in the companies it backs. Instead, it will offer uncapped convertible notes, more or less debt that can be converted into common shares.
Those loans will not assign a valuation to a start-up, putting less pressure on founders when it comes time for their next fund-raising round, Mr. Midha said. Instead, in that next capital-raising effort, the companies can either choose to repay the loan or redeem the convertible notes into stock at the valuation that new investors assigned the company.
That avoids diluting the founders and other employees because they don’t necessarily have to give up any equity.
The firm is focusing on six main industries in which to back start-ups, including virtual reality, drones and digital health.
The idea for Edge Fund arose from conversations between Mr. Midha, who joined Kleiner Perkins about a year and a half ago, and Mike Abbott, a partner whose investments at the firm include Snapchat and Codecademy. The two bonded over coding, particularly over an internal project that Mr. Midha had been working on, and mused to each other about how that was what the two should be focusing on.
At the same time, given the size of Kleiner Perkins’ existing funds, the firm could not write checks small enough to make seed-size investments.
What they came up with, in Mr. Midha’s words, was “full-stack venture capital” that offers start-ups a wider range of resources than they might have on their own.
At the moment, Edge Fund’s team includes Mr. Midha, who previously worked on Kleiner Perkins’s investments in the likes of Magic Leap, the augmented reality company; Ruby Lee, who previously worked at Google; and Roneil Rumburg, the founder of Backslash, a Bitcoin payments start-up.
What the Edge Fund isn’t, according to Kleiner Perkins, is a direct competitor to syndicates of individual angel investors like AngelList or various crowdfunding efforts.
Mr. Midha professed admiration for AngelList, but added, “At some point, as a founder, you need more than a check.”
So far, the initiative has made four investments, though Mr. Midha declined to identify them.
Unusually, Mr. Midha contended that turning a profit was not necessarily the biggest aim of the Edge Fund. Instead, he said, it was promoting a more robust ecosystem within those six industries, and one in which Kleiner Perkins will hopefully have a healthy piece.
“if I make one times our money, it’s a success,” he said.
via Kleiner Perkins to Write Smaller Checks With $4 Million Fund – The New York Times.