It took a few more years than initially planned, but early-stage venture firm Pillar has raised the $100 million fund it wanted.
Launching with fanfare in 2016 under former North Bridge Venture Partners’ Jamie Goldstein, Pillar set its sights on $100 million for its debut fund but ended up raising just $57 million. It has since sent that money into early stakes in 26 companies, including Algorand, Desktop Metal, PillPack, Circle, Hometap, Kuebix, PathAI, and Asimov.
Today, the firm announced passing that $100 million milestone with its second fund.
Pillar partner Sarah Hodges tells Xconomy the firm’s pitch to invest in early-stage, Boston-area startups was an easier sell for limited partners this time around.
“When we went out to raise fund one, we had to convince LPs that Boston is worth investing in,” says Hodges, a veteran of Pluralsight (NASDAQ: [[ticker:PS]]), Intelligent.ly, RunKeeper, and Carbonite (NASDAQ: [[ticker:CARB]]). “This time around raising fund two, we saw a lot more excitement around Boston. LPs got it.”
Pillar’s focus on technologies with machine learning-enabled software, blockchain, hardware and computation in biology has caught investors’ interest, she says. Twenty-two of the firm’s portfolio companies from the first fund were startups when Pillar invested, while the other four were later-stage businesses. Many had roots at MIT or Harvard. Founders of the companies were evenly split between first-timers and experienced entrepreneurs.
The larger fund size gives Pillar the flexibility to put more into prospective investments, which the firm would have done earlier on in some cases had it the resources, Hodges says.
Entrepreneurs raising too much, too early has been criticized by some in the venture community, including Founder Collective managing partner Eric Paley. The average early-stage deal size ticked up in the first three months of 2019 to $2.3 million, from the $2.1 million average in 2018, according to data from Pitchbook and the National Venture Capital Association.
Hodges knows the debate well and says one of the reasons its recent investments have increased from $1.1 million to $1.5 million is because Pillar is backing earlier companies that the firm believes need more time to build up infrastructure and land customers. She says Pillar sees its role in helping startups nail down a good plan for capital and to make sure they aren’t raising more capital just because they can.
“I think every startup founder needs to decide what he right amount of capital is to power their stage of the business,” she says.
Pillar’s first fund was backed by a swarm of Boston tech CEOs, many of them angel investors themselves: Jason Robins of DraftKings; Niraj Shah and Steve Conine of Wayfair (NYSE: [[ticker:W]]); Tom Ebling of Demandware; Steve Kaufer of TripAdvisor (NASDAQ: [[ticker:TRIP]]); and Ellen Rubin of ClearSky Data. This second time around, Pillar is adding to its investor-advisor ranks Gail Goodman of Constant Contact; Jeremy Allaire of Circle; Reshma Shetty of Ginkgo Bioworks; Yvonne Hao of PillPack; and Rushika Fernandopulle of Iora Health.
A few of the people who have contributed to the funds including Allaire at Circle, Deepak Taneja of Zilla Security, and Steve Kokinos of Algorand, are also leaders of Pillar portfolio companies. Their advisory work is firewalled from any investment decision making for their respective companies, as well as any due diligence connected with a potential investment that could be a competitor, Hodges says.
“There really isn’t friction,” she says. “The great thing about all those people, they built companies to scale and they have advice and insight to share with founders.”
It’s still the early days for Pillar’s investments from its first fund, and Hodges says they have seen one exit so far through Amazon’s purchase of Boston startup PillPack in June 2018 for $753 million.
Hodges won’t share details about Pillar’s stake in PillPack or the return it saw from the Amazon (NASDAQ: [[ticker:AMZN]]) deal. Hodges says Pillar saw a “nice, healthy return” from that decision.
Pillar buys common stock from startups, rather than stock with terms that give it certain “downside” protections if the company’s returns don’t measure up, the firm says. Hodges says some top-tier firms have followed suit in taking common stock in investment rounds led by Pillar.
“When we looked at startup performance we found if a company is a runaway success, we all win. If a company fails and doesn’t produce returns we all lose. If it has moderate returns, that’s where it mattered,” Hodges says. “We are not going to build the next Sequoia, the next great VC platform, on downside protection.”
