The venture capital industry is going through big changes, perhaps nowhere more so than in Boston, its birthplace. Today a new fund is coming out of stealth that speaks to recent trends in startups and VC—and it’s also trying to help unite the entrepreneurial community.
The fund is called Pillar, and it has a familiar face behind it. He’s Jamie Goldstein, formerly of North Bridge Venture Partners. Like most VCs, Goldstein thinks he has figured out something about the local ecosystem. Unlike most, he’s doing something different with that insight—launching a new fund to invest in tech startups, with what sounds like a different approach from the status quo (more on that in a minute).
Here are the basics: Goldstein is targeting a fund size of $100 million, which he says he’ll be raising through the summer. He says a “substantial chunk” has already been raised in a first close. So far, the money is all from individuals, but he says there will be institutional investors in the fund as well.
Goldstein (pictured) is working with 16 prominent local tech founders and CEO types, who are part-owners and investors in the fund. They include Steve Kaufer from TripAdvisor, Niraj Shah and Steve Conine of Wayfair, Corey Thomas from Rapid7, Ash Ashutosh from Actifio, Rich Napolitano and Dave Husak of Plexxi, and Jason Robins of DraftKings. Their roles with portfolio companies will vary, Goldstein says; some may serve on boards, others may mentor or advise CEOs.
If the model sounds familiar, it’s because G20 Ventures, led by Bob Hower and Bill Wiberg, is doing something roughly similar in the Boston area—bringing together a distinguished group of founders and executives as limited partners and advisors. There’s also Accomplice, which has been making investments alongside prominent angel investors and founders through its Boston Syndicates program. And Converge Venture Partners, which recently formalized its network of mentors.
But here’s what’s different: Pillar says it will buy common stock in its startups, not preferred stock. This is a big departure from the VC norm. Getting preferred stock is one way that venture firms protect their investments. They can get their money back if a company sells for less than the valuation it had when they invested, while still making a multiple if the price goes up. They also tend to include anti-dilution provisions that protect against “down rounds” (when the share price decreases).
Though fairly standard, these types of deals can be a hard bargain for startups. “I think we’ve done a disservice to ourselves by coming up with these structures that put us at odds with entrepreneurs,” Goldstein says. “None of this matters to driving returns on the fund.” It may help on an individual deal, but for overall profits, he says, the key is “not getting a little extra on the losers, it’s getting in on the winners.” Buying common stock means Pillar will be on more equal footing with the entrepreneurs when it comes to exits.
“Our message is clear,” he says. “We only make money if you make money.”
Other investors and entrepreneurs may be skeptical, but Dave Balter isn’t one of them. “A lot of VCs say they’re focused on the entrepreneur, but fund structures make that difficult,” says Balter, a serial entrepreneur and venture partner at Boston Seed Capital. (He’s now CEO of Boston startup Mylestoned and is not involved with Pillar.) Goldstein appears to be “killing some sacred cows,” he says, and “that makes him truly entrepreneur-first.”
Balter adds, “I think Pillar is innovative with its structure and approach. It should be good for the ecosystem. The more seed funds, the better for Boston.”
Another entrepreneur-first point for Pillar: Goldstein says he wants to set terms up front whereby founders will have a structure in place to cash out some of their stock—say, $1 million after three years and certain milestones. (That could reduce the temptation to accept the first decent acquisition bid for the company.) The bigger goal, he says, is to keep founders’ and investors’ interests better aligned.
This attitude reflects a broader shift in the startup-VC dynamic.
