Sterling Road takes a coaching-first approach to VC investing

There’s not a lot new under the sun in the world of venture capital — look at 20 VC websites and they’re pretty much all indistinguishable. Yes, they invest in the best teams. Yes, they are “value add.” Yes, they… god, it’s so boring I want to gauge my eyes out with the sharp edge of a convertible note contract. Ash Rust’s Sterling Road is a fresh take on it all, with a business model that turns things on their head.

The firm just raised its third fund, weighing in at $20 million, following its first two funds, which were $3 million and $9 million, respectively. The firm focuses on B2B companies at the very start of their journeys, often writing the first institutional checks into the companies it invests in. The fund is relatively small, but it writes $250,000 checks and has some held back for follow-on investments, so there’s enough dry powder for a fair number of investments.

The twist is that the fund is help-first, invest-later. The pitch? The investor gets a deep view into how the founders operate, think and act. The founders get a taste of what it’s like to work with the investor. And if the “I like you, do you like me” works out well, the union is consummated with an investment check into the company.

The firm’s thesis is an antithesis to the speed-forward, FOMO-driven approach of most fundraising processes. It invariably means that the firm misses out on some good deals, but Rust claims that this is a feature, not a bug.

“I think that an awful lot of time is spent chasing the latest hot founder. They’re closing a round next Monday and you have to meet them quickly and do all the references,” laments Rust. “Those deals are all ‘nos’ for me. It’s a respectful pass — I’m really sorry, I just can’t help you. Congratulations, but you are too far along.”

The firm has a particular commitment to diversity.

“We still have a lot of work to do on diversity, but we endeavor to invest in founders that have historically received a smaller share of venture capital dollars. This could be due to race, gender or even geographic location,” says Rust. “In our second fund, 65% of our capital went to founders with backgrounds that are traditionally underrepresented in tech. We will push to do even better in Fund 3. I want to find the founders that haven’t been through those traditional paths. I’m biracial myself, but I was raised in a Caucasian household. It’s easy for me to find white dudes; they are in my inbox all day. If I want to find great founders from very different backgrounds and with different perspectives than me, the best mechanism I found to do that is to be marketing publicly, and in a very niche area focused on the early-stage founders and the content around that rather than topical stuff like people’s latest IPO.”

The center of the bullseye for the fund is technical founders that are working in an area where they have specialist knowledge, but without the experience of running startups; the team tells me that’s where they add the most value. Often that means founders who are less familiar with fundraising, getting early sales or recruiting the right teams.