Introducing Cake Ventures Fund I (aka Reasonable Doubt)
Today, I’m officially announcing Cake Ventures Fund I, a $17M seed and pre-seed fund to invest in founders building companies and products for the inevitable demographic change happening today.
Cake Fund I will invest in ~20 companies and write checks from $250K-$500K. We have already invested in 12 companies, some of which you can find on our website. We invest in the US & Canada, and while Cake is based in San Francisco, thus far 66% of our investments have been outside Silicon Valley.
Cake Ventures is a thesis-driven fund investing in the ‘layers’ of demographic change that are fueling transformative technology.
Demographic transition is one of the most important changes to technology because it represents a sea change in the technology users.
And when users change, technology must follow suit.
These are the demographic opportunities that make up the layers of the Cake thesis and reflect how we think about the world:
Aging and longevity: By 2034, Americans over 65 will outnumber those under 18. This large and economically powerful demographic group increasingly has the expectation that they will use technology and innovation to address the unique challenges of late life. Today’s aging consumers will use software to help them age in place, access healthcare, manage finances, or find work and purpose beyond retirement.
The billion-dollar female economy: Women are the original influencers and they’ve become the consumers that drive growth. Women wield influence over the many ways they connect online, shop, and access products and services for both themselves and their families. Female consumers are driving companies to multi-billion-dollar outcomes in categories like women’s health, e-commerce, the care economy, and more.
The shift to majority-minority: The rising New Majority are early technology adopters who drive internet culture. Shifting demographics have made Asian, Black, and Latino people the fastest-growing and most lucrative consumer groups in the U.S. and beyond. America’s shift to a majority-minority nation has unlocked opportunities for technology and software companies that address the unsolved problems and unmet needs of these consumers: improved healthcare outcomes, more inclusive financial products, and culture-driven consumer technology.
While Cake Ventures is one of the only venture funds that has clearly articulated a thesis around demographic change in this way, companies that touch demographic change are hiding in plain sight. They are already achieving billion-dollar valuations and successful IPOs.
A few examples of well-known companies that you might have heard of: Klarna, a fintech company that allows you to split payments and pay later as you shop; CityBlock Health, a healthcare provider for underserved communities; and Weee!, grocery delivery for Asian and Latino foods.
In Cake’s own portfolio, we have invested in companies like Most Days, a behavioral health platform that helps people create healthy habits that extend quality and length of life; Guaranteed, a company using technology to reimagine hospice care and end of life; and Bright, AI-powered immersive training and skills development for an evolving workforce.
The companies I look for are ones that tap into a deep-seated user need or behavior and rarely ones that are ‘artificially gated’ to a surface-level user type.
The limited partners who backed this fund are some of the best in the industry. Many of them saw my vision early and backed Cake Ventures with conviction that they were at the beginning of something special. We received support from limited partners that include Cendana Capital, Foundry Group, First Close Partners, Bank of America, Plexo Capital, Insight Partners, Screendoor, and Pivotal Ventures (a Melinda French Gates company).
In addition to these foundational LPs, over 25% of the LP dollars in this fund were contributed by female LPs, many of whom are women of color, including Bernadette Aulestia, Wayee Chu, Bulbul Gupta, Arlan Hamilton, Kimberly Marshall, and more.
Women have been underrepresented in the financial opportunity created by venture capital — both as equity holders on cap tables and as limited partners at venture funds and I am especially incentivized to deliver financial wins for these women who have trusted me with their capital.
In spite of this stellar list of LPs, raising Fund I is never easy. Institutional LPs are often reluctant to take a risk on an unproven fund manager — even with prior investing experience.
But first funds are like classic hip-hop albums — they outperform.
Reasonable doubt
But until then lately, I’m the one who’s crazy?
’Cause that’s the way you’re making me feel
I’m just trying to get mine, I don’t have the time
To knock the hustle for real
Jay-Z — Can’t Knock the Hustle feat. Mary J. Blige, Reasonable Doubt (1996)
As of Q3 2022, $223.6B was invested in venture funds¹, but despite the record numbers of new funds being launched, the majority of this capital was invested in well-established, brand-name funds with long track records and collectively, billions of assets under management.
Yet, emerging managers and smaller funds deliver outsized returns. Cambridge Associates found that new and developing firms are consistently among the top 10 performers in the venture capital asset class, accounting for 72% of the top returning firms between 2004–2016.² Similarly, Greenspring Associates found that across 180 partnerships, their investments in emerging managers “outperformed relative to their established counterparts”, delivering net IRR 0.87% above established managers.³ Investing in emerging funds, many of which are led by diverse fund managers, also unlocks additional alpha as diverse fund managers outperformed the median performer in 11 of the 14 years studied.⁴
In spite of the data in favor of investing in emerging managers, when faced with first funds, some LPs have reasonable doubt. Smaller fund sizes, unproven firms, new teams, and solo capitalists all represent the untenable questions that come with a first fund.
Even in my own fundraise, I fielded questions like: “why don’t you join up with another (usually male) VC?”, “why isn’t this fund focused exclusively on diversity?”, “what do you know about aging?”, “why are you in my office raising money when you could be at a big venture firm making more money?” as if the vision and ambition were not enough. And as eye-roll-inducing as they are, some of these are the exact right questions to ask. Reasonable doubt.
But just like Jay-Z’s first album, first funds are classics.
500 Global’s (formerly 500 Startups) first global flagship fund (2010 vintage) is a top decile performer reporting a net TVPI of 11x⁵ and a portfolio that includes Twilio, The RealReal, and Sendgrid. Union Square Ventures debut fund (2004 vintage) returned 15x on invested capital and has a portfolio that included Twitter, Etsy, and Zynga.⁶ Chris Sacca, the OG of solo capitalists, may have the best-performing first fund of all time, with Lowercase Capital Fund I reportedly returning 250x on an $8M fund⁷ courtesy of portfolio companies like Twitter, Uber, and Docker.
I fully expect Cake Ventures to be one of the next generation of great venture firms.
At Cake, we want to live just slightly ahead of where everyone else is looking and continually translate these demographic changes and how they impact your business for entrepreneurs. If you’re building something revolutionary and think it might fit for Cake Ventures, connect with us.
To celebrate Cake Fund I (aka Reasonable Doubt), I made y’all a playlist of (mostly) first hip-hop albums that are all classics, no skips. You’re welcome to argue with me about the definition of a classic @moniquewoodard.
If you prefer less explicit language, here is a clean version (minus a few songs).
¹ https://pitchbook.com/news/reports/q3-2022-global-private-market-fundraising-report
² https://www.forbes.com/sites/heatherhartnett1/2022/09/12/when-public-markets-experience-volatility-experts-say-to-invest-in-emerging-managers/
³ https://blog.greenspringassociates.com/venturecapitalsaccessmyth
⁴ https://www.cambridgeassociates.com/insight/should-clients-consider-diversity-when-making-investment-decisions/
⁵ https://www.bloomberg.com/press-releases/2021-09-15/500-startups-closes-largest-fund-raised-to-date-announces-rebrand-to-500-global
⁶ https://gothamgal.com/2022/12/usvs-first-fund-closes/
⁷ https://techcrunch.com/2021/03/31/cendana-has-raised-a-30-million-fund-of-funds-for-vcs-managing-15-million-or-less/
