Jeet Singh and Joe Chung have already had a nice exit, taking their enterprise software company Art Technology Group public (it was acquired by Oracle for $1 billion back in 2010). Now they’re hoping to turn the act of building successful startups into a “repeatable process,” through their new firm Redstar ventures.
Singh and Chung, along with their third co-founder Matt Beecher, said they became interested in angel investing a few years ago, but at the same time they were turned off by the randomness and risk of the traditional model. So they developed their own approach, a “venture foundry,” where the firm focuses on a few broad themes, develops companies internally, and then spins them out if they seem to be getting traction. Here’s how the model is described on the Redstar website:
We identify significant trends and growing markets, and develop potential products and services for those markets. We match very successful mentors with young and experienced entrepreneurs and co-found companies with them. Together, we staff these teams, evaluate the market, build and test the product or service, establish partnerships, identify sources of investment, and launch the enterprise. We also fund these firms through their seed-stages.
What are those themes? The firm has three so far, namely underemployment, the “grey market,” and the present/future of media.
Apparently Redstar has actually been around for a couple of years, but didn’t really publicize its existence — it’s only starting now because it has launched its first company, social shopping startup LoopIt (I’m assuming that’s one for the grey market category). The goal is to launch about three companies per year, Beecher said.
“We might spend seven, eight, nine months on the concept before we launch it,” he added.
“The core tenet of our business is knowing which [concepts to focus on] better and earlier through our network and research.”
Redstar describes this as a “top-down” approach to building companies. That makes it sound like the firm is going against much of the received wisdom in Silicon Valley, where entrepreneurs are encouraged to launch their products as soon as possible and adapt based on customer feedback, and where team and execution are valued over ideas.
Chung said he definitely expects companies to adapt and change, but he said that too many startups overvalue execution: “In the early days of ATG, there were so many company- killing decisions that we had to undo, but we were able to get away with it. … One of the great fallacies is that startups are really good at executing.”
Not that Redstar is relying entirely on its thematic approach to guide its investments. It’s also a question of building the team — the partners said they might be excited about a given idea but decline to pursue it if they can’t find the right executive to lead the company.
The firm aims to make investments of $500,000 to $1 million. Ultimately, Singh said the partners are hoping that half their companies will be successful. That would be pretty remarkable if it happened, but he noted that with a higher success rate, Redstar doesn’t need “billion dollar successes” to pay off.
“We don’t have to swing for the fences,” Singh said. “We’re trying to build good, solid companies that eventually sell at a reasonable valuation.”
REdstar itself is self-funded so far. The partners said they’re looking to raise money this year, but it might be structured less as a traditional venture fund and more as an equity investment in Redstar.