In the race to get in early on tech's next great startup, a newly formed seed-stage venture capital group plans to offer partnership stakes to all the company founders it invests in.
Think of it as exploiting the wisdom of the crowd -- a small crowd, to be sure -- but one that Upside Partnership CEO Kent Goldman hopes will come in handy when pitching prospective clients on why they ought to do business with him.
"When you ask founders where they get their best advice from, it's often that they'll tell you it's from other founders," Goldman said. "I wanted to have a firm where founders would support one another."
The assumption is that if all the founders have partnership stakes in the fund's other companies, they'll also have extra incentive to help one another out with advice, according to Goldman, a former deal-maker at Yahoo and for the last four years a venture capitalist at First Round.
"The other thing you hear from founders is that they say they want to be treated like partners by their investors," he said. "They don't want to be treated like an appendage to the fund."
Goldman declined to get into specifics of the firm's financial arrangements with its clients but said that "well into a double-digit percentage of the firm's carry" has been set aside for the founders. He added that the fund had raised more than $30 million from investors.
Now comes the hard part: figuring out where to place bets. In a market where stock valuations in some sectors are starting to look stretched, sussing out any hidden clues about the depth of an entrepreneur's commitment and passion becomes that much more acute. There's no one right answer, especially in a process that's anything but a science. However, Goldman shared an anecdote that spoke volumes about what happens when the questions elicit the winning responses.
About 18 months ago, a mutual friend introduced him to an entrepreneur named Jonathan Downey, who was building a company called Airware, which designed drone-control systems. At the time, hardware-related businesses were not drawing investor interest, Goldman recalled.
"So my first question to him was, Why is this important to you? He said, 'My grandfather was a pilot. My father was a pilot as long as I can remember. I went to MIT to study automated flight systesms. I went to Boeing so I could keep working on them. And then I left Boeing to start my own company because I couldn't innovate faster."
"That's the type of answer you're looking for," Goldman said.