Formation 8
paul lee
Builders

Formation 8 founder Jim Kim and longtime VC Paul Lee partner on a new fund called Builders

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Jim Kim, who most recently co-founded the venture firm Formation 8, is launching a brand-new venture firm called Builders that looks to be raising a $200 million fund, judging by a recent SEC filing. His co-founder is Paul Lee, who left the Chicago venture firm Lightbank in 2014 and last year launched a startup studio called Roniin that we wrote about last year.

It isn’t a surprise to see Kim starting something new. After a tumultuous 2015, Formation 8 had decided against raising a third fund. We wondered whether Builders meant that Lee was similarly moving on from Roniin, however, so we recently caught up with both men to ask that question, as well as ask how they came together, and what Builders — which already has an office in both San Francisco and Chicago — plans to do differently than the hundreds of other venture firms up and running. (We also asked about the pair’s fundraising progress, but they declined to comment, citing SEC regulations.)

More from that conversation follows.

TC: How well do you two know each other? When did you meet?

PL: We go back 15 years. We both started our careers at GE Capital. Jim was building up its IT practice; I was building up its media practice. But we spent time talking about deals, we’d get drinks. We’ve probably talked monthly ever since then.

We did go off and build our own platforms. Jim built Formation 8. I ran Lightbank. But he was my first call in helping shape Roniin and he was the first investor in the platform and in five of the companies that have come out of the platform since.

TC: Roniin’s big idea was to take the ideas of overly busy entrepreneurs, find first-time founders to bring them to life, then give both a big chunk of the new company — along with a little seed capital from Roniin. What happens to it now that you’re starting a new fund?

PL: It’s being rebranded as Builder Studios, and it will be working with the startups that we fund. [The $3 million seed round it raised] was used to prove out the concept and it worked; we learned how to run that P&L and run that infrastructure without a massive amount of burn. Now, we want to use that team of experts we’ve assembled [including engineers, sales personnel, marketers, and back office operations employees] to support our portfolio companies.

TC: So you’re creating more of a platform for your new fund. And will the people at the studio get equity in these startups? How does compensation work across the fund and the studio?

JK: We aren’t commenting publicly on that right now. But when you look at the data, one out of every three seed-funded companies was able to raise a Series A round a few years ago; now, that percentage is much smaller. So there’s this opportunity to help an entrepreneur who has a good technical team to find product-market fit and help give them multiple shots on the goal. We aren’t talking about PR or HR. We think instead startups can benefit greatly from working alongside this studio and accessing this group of operators [to improve everything] from their UI/UX to product development.

TC: How much money will you be plugging into your portfolio companies?

JK: We want to write $3 million to $10 million checks and accelerate the companies for their next round of funding.

TC: Are you focusing on particular sectors?

PL: We believe as an early-stage fund, you can’t be too sector-specific. Instead, we’re thesis driven, meaning we’re not looking purely for science experiments but rather the application of fantastic technologies in antiquated markets combined with ruthless execution by founders. Paro.io [which invites customers to outsource their finance departments and that received seed funding from Roniin] is one example; it leverages the same blueprint. OfficeLuv [an office cleaning and management service] is another. We especially like companies that are [small and medium-size business] oriented.

TC: That doesn’t sound so unlike what other VC firms are looking for. But you’re arguing that this studio is your core competitive advantage.

JK: Traditionally, seed-funded companies will work on a product for six months, then they’ll feel that they have to start selling, so they’ll hire a VP of sales who it takes three months to find and another three months to train. It’s at least a year before you’re talking with customers and hearing if you’re addressing a customer pain point, and if you aren’t, you raise an extension found.

[With Builders], from day one, we’re getting sales and marketing people involved with the founder to go after a vertical or a geography and to start talking with customers. If you can build features earlier and iterate multiple times and run these projects every two to three months, you’re going to find customer pain points a lot earlier, and you’re going to have more shots at Series A funding.