After staying heads down for the past year, Trae Vassallo and Neil Sequeira, two longtime venture capitalists whose individual brands are well-known to Bay Area startup founders, are finally taking the wraps off their new venture firm, Defy Partners. As part of the big reveal, they say they’ve closed their debut fund with $151 million in capital commitments, including from endowments, family offices, foundations and non-profits. They’re also sharing the firm’s overarching thesis: that the best place to invest right now is in Series A deals.
It isn’t a surprising conclusion, considering what’s happening at the other ends of the investing spectrum. Seed investing remains crowded. Meanwhile, although the IPO market looks healthier than it has in a long time, later-stage investors have to contend with another threat to their business: Softbank’s nearly $100 billion Vision Fund, which is routinely outspending rivals for prized stakes in promising companies.
In fact, Vassallo and Sequeria were thinking much the same thing about the Series A opportunity — but independent of one another — when a quintessential Silicon Valley encounter took place.
Vassallo’s husband, Steve, who is a venture capitalist with Foundation Capital, was at a Warrior’s game with Sequeria. As the basketball game progressed, Sequeria, long an investor with General Catalyst Partners who’d left the firm in late 2015, shared his plans to start his own, much smaller outfit. He had in mind a firm whose funds would never grow so large that he’d have to say no to fairly nascent startups, and never so big that producing meaningful returns to his investors became nearly impossible. He had in mind a kind of Benchmark, which — with one exception during the dot.com bubble — has kept its fund sizes in the range of $425 million.
As it happens, Trae Vassallo, who’d left her investing role with Kleiner Perkins in 2014, was already forming a fund around the same idea. Her husband told Sequeria. Sequeria and Vassallo met soon after for coffee, and the rest is history.
History in the making, anyway. Defy has made just three investments to date, including one deal that Vassallo and Sequeria originally funded with their own money but moved into the fund. While each remains in so-called stealth mode, one is in the logistics space and was bootstrapped until Defy led its Series A, says Sequeria. Another is a “connected consumer” play founded by an entrepreneur who Vassallo says she has known for 20 years.
Asked about their focus, both suggest it will be broad. Sequeria, who formerly served on boards of The Honest Company and NatureBox, calls it “just the third inning” for new e-commerce brands. Media and software-as-a-service companies are other areas of interest. Separately, Vassallo — who led Kleiner Perkins’ investment in Dropcam (later acquired by Nest Labs) and more recently invested in the mesh WiFi router company Eero — remains fascinated with the intersection of hardware and software.
Both will be playing distinct but complementary roles. Sequeria’s strength is as an “incredible strategist,” says Vassallo, noting his ability to connect the right people at the right time. She calls herself a “tech geek” who largely enjoys “pushing on entrepreneurs from a product perspective, keeping them focused on iterating around the product, then helping them sell it.”
As for the size checks they will be writing, they expect most of their investments will range from between $3 million and $7 million. For example, their newest investment saw them lead a $9 million Series A round with a $5 million check. Sequeria says the general idea is to own between 10 and 20 percent of each portfolio company. “We’re not overstepping, but we have no interest in single-digit ownership,” he explains.
Despite their collective 40-plus years in the venture industry, both Sequeria and Vassallo stress that new founders are just as interesting to them as the founders and other operators who they’ve worked with in the past and who may come knocking on their door.
“Trae and I have been doing this a long time,” says Sequeria. “We know that just like with any new market, where you never know how big it is, with a new founder, you never know how far they can go.”