Venture

Founders Circle Capital has raised a new $355 million fund to buy primary and secondary shares

Comment

Image Credits: Nisian Hughes (opens in a new window) / Getty Images

Founders Circle Capital, a nine-year-old, San Francisco-based investment firm that strikes agreements with private, venture-backed companies to buy some of the vested stock options of their founders and employees — so they can buy a house or just breathe a bit more easily — has closed its newest fund with $355 million in capital commitments, bringing the firm’s total assets under management to nearly $1 billion.

Not surprisingly, the outfit, which has more competition than ever — both by other secondary investment firms, aggressive outfits like Tiger Global that routinely acquire secondary stakes in companies, as well as special purpose acquisition companies that are taking companies public a lot faster and alleviating the need of early shareholders to cash out via private sales — is also introducing a new twist to its business.

Specifically, according to both co-founder Ken Loveless and the outfit’s chief people officer, Mark Dempster, Founders Circle is now offering startups so-called flexible capital, too. We talked with Loveless and Dempster via Zoom late last week about the new fund and generally what they are seeing out there. Excerpts from that chat, edited for length and clarity, follow.

TC: This is your third fund. How does it compare with your earlier funds?

KL: We’ve raised three main funds. This is our third, but we’ve raised something like 17 entities [altogether], including some co-investment vehicles and special purpose vehicles to invest in some of our companies.

TC: And you’re now changing your approach a bit. How so?

MD: [We’re now offering] a mix of primary and secondary [investment dollars] and we can [offer these] any time and in any combination. These [investments] don’t have to happen during a certain [distinct] round of financing; we might get involved in eight to 10 different investments [tied to the company].

TC: How has your world changed now that people perhaps see a light at the end of the tunnel, with companies becoming publicly traded entities in a variety of ways that we didn’t see until more recently? Are employees or founders any more or less reluctant to sell their shares in secondary transactions?

KL: There hasn’t been any significant change. We had a portfolio company go public in UiPath that was 16 years old and if you think about how many things change in your life over that kind of time period, it would be quite a long list. We also had [stakes] in DoorDash and Poshmark, and if you look at the time between when they were founded and became publicly traded, it was close to a decade for both. So [while there is some market receptivity for companies] that really are two years old or three years old, the average [time from launch to publicly traded company] is still 10-plus years on average.

TC: A lot of outfits are competing for the same shares that you want to buy, including Tiger Global, which is paying very high prices in many cases. In addition to competing with these companies, would you ever sell your shares to them?

KL: We are typically a long-only investor. We have not sold any secondary shares. We typically hold through a public offering. We’re really trying to focus on those companies that can truly be in enduring, decades-old businesses. We obviously wouldn’t hold that long, but we’re holding into the public markets.

TC: How long do you hold your shares?

KL: We’re not bound [by anything] but what we tell our [investors] is that we typically hold for an average of one year post public offering [then distribute the shares to them].

TC: How, if at all, are you playing this SPAC phenomenon? Are you seeing opportunities to jump into these blank check companies before they merge with brands you’ve maybe been tracking?

KL: We have not directly participated in a SPAC, but we have had some of our portfolio companies merged with some SPACs, so we’ve taken advantage of [those exits] as a financing tool.

TC: You’ve been at this for roughly a decade. How many companies have you backed and how many of these have exited?

MD: We’ve invested in 73 companies and 31 have exited.

TC: I know you tend to invest at a later stage — have there been any shutdowns owing to unforeseen circumstances?

MD: We’ve had zero company shutdowns.

TC: And what about prices you’re having to pay? How has that changed over the last year or so?

KL: We just did an analysis of this and if you adjust for growth, we have not seen a substantial raise in valuations that we have paid compared to where prices were pre-pandemic. We’re paying the same dollar for a point of growth as we were before [COVID-19 struck the U.S.].

TC: Why do you think that is?

KL: Companies that have solid unit economics have become better at both benchmarking their internal metrics, and investors have become better at understanding those and metrics. The consistency and underwriting by investors is becoming better and better.

Inside the US’ epic first-quarter venture capital results

More TechCrunch

Welcome back to TechCrunch’s Week in Review. This week had two major events from OpenAI and Google. OpenAI’s spring update event saw the reveal of its new model, GPT-4o, which…

OpenAI and Google lay out their competing AI visions

Expedia says Rathi Murthy and Sreenivas Rachamadugu, respectively its CTO and senior vice president of core services product & engineering, are no longer employed at the travel booking company. In…

Expedia says two execs dismissed after ‘violation of company policy’

When Jeffrey Wang posted to X asking if anyone wanted to go in on an order of fancy-but-affordable office nap pods, he didn’t expect the post to go viral.

With AI startups booming, nap pods and Silicon Valley hustle culture are back

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

A new crop of early-stage startups — along with some recent VC investments — illustrates a niche emerging in the autonomous vehicle technology sector. Unlike the companies bringing robotaxis to…

VCs and the military are fueling self-driving startups that don’t need roads

When the founders of Sagetap, Sahil Khanna and Kevin Hughes, started working at early-stage enterprise software startups, they were surprised to find that the companies they worked at were trying…

Deal Dive: Sagetap looks to bring enterprise software sales into the 21st century

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI moves away from safety

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

1 day ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

2 days ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo