Floodgate Fund 6: The beginning of our second act
Since our founding in 2006, Floodgate has never publicly announced raising a new fund. Our view has been that raising money is not an accomplishment for startups or funds — the emphasis should be on delivering results and making money.
But our most recently raised Fund, Floodgate 6, pulls together some important things we have been working on and points the way to our next ten years. So, I wanted to talk about why we think Fund 6 is the beginning of something big for us.
How We Got Here
To get the facts out of the way: As has been reported, we have just closed Floodgate Fund 6 for $131 Million and are grateful to be working with the same awesome LPs who have worked with us for our last four funds. We are very appreciative of their confidence and intend to prove worthy of it.
From a broader perspective, we are now ten years into what seemed like a crazy experiment. It may seem hard to believe in 2017, but in 2006 it was hard to raise a seed round of “just” $1 Million in Silicon Valley. You had to raise a tiny amount from Angels or go straight to raising more than $5 Million. At the same time, more and more startups were able to take advantage of the collapsing costs of starting a company. It was a prefect storm of opportunity: The exact founders who were taking advantage of new technology enablers were under-served by the venture capital community. Thus, Floodgate was born from the idea that “$500,000 is the new $5 Million.”
But it was about more than money and financing seed rounds. We had a chance to apply what was at the time a new set of frameworks around lean startups and customer development. Ann Miura-Ko, before she even decided to re-enter the venture business, taught these frameworks at Stanford with Steve Blank and Eric Ries before we even knew how to fully describe them. Words like “minimum viable product,” “pivots” and even the “lean startup” term itself did not yet exist.
It was a thrill to see these ideas happen in the real world, especially since Floodgate at its core was designed to address the needs of the Founders harnessing these ideas. Customer development and lean startup techniques have influenced tens of thousands of startups and the impact has been overwhelmingly positive.
The Next Ten Years Belong to the Prime Movers
But the world has changed since ten years ago. Seed funding is now ubiquitous. Over 300 seed funds have raised capital and 300 more are trying to raise a first-time fund. In 2006, seed funds raised a combined total of about $75 Million. Today, well over $1 Billion is raised per year in this sector. Lean startup techniques are well understood by any founder who matters. Providing seed capital to founders is a commodity. For founders and seed investors to stand out from the crowd in today’s world, they need to do more — much more.
In a world of too many new startups, founders need to up their game if they want to win. The tech industry is no longer just about technology. Lyft has affected transportation in the large. Twitter has done the same for communication. Founders of companies in the next ten years need to create movements that will bring abundance to the entire world. We call these special Founders the Prime Movers.
What is true of the Prime Movers who will win in the next decade? We have thought about and experimented with this a LOT in the last few years and are now prepared to make a big bet on our point of view. We believe that Founders who win in the future will have four key traits:
1. They will pull more levers than just the “product lever.” Instead, Prime Movers will build their businesses across the entire value stack. This includes Proprietary Power, Product Power, Business Model Power, Company Power, and Category Power. Product/Market fit is still necessary, but it’s not enough. Founders who win will need to use all of the weapons possible…not just one weapon.
2. They will marry agility with strategic rigor. In recent times, many Founders have gone too far with the flexibility of lean startup approaches and have created businesses that can ship products quickly, but are not strategically grounded. They often iterate to a local maximum rather than the top of a huge peak. Prime Movers are increasingly turning agility and strategic rigor into force multipliers that reinforce each other.
3. They won’t be bound by limits. Prime Movers know they will often encounter fierce resistance, but they push forward, around, and through the barriers, even if it means getting outmoded laws changed. They realize that changing things is not a hope…it’s a decision. And they understand that most limits in the world exist only in the minds of people who choose to believe them.
4. They will start movements, not just companies. Prime Movers realize that great companies are about making meaning in addition to money. They don’t just have firms with workers; they have ecosystems of believers both inside and outside of their companies. Technology and networking make it possible to enlist vast groups of people to a company’s cause.
Enter Fund 6
We have been working on a set of ideas and approaches that are built from the ground-up to serve the needs of the Prime Movers. There will be tens of thousands of startups created in the next ten years. We wish them and their founders nothing but the best. But our goal is quite specific: We want to be the absolute best partner to the top .1% Prime Movers before the rest of the world believes. Before product/market fit. Before traction. Before there’s a parade to get in front of. Everything we are doing will reflect that we are purpose-built to do this. If the last ten years were about how “$500,000 is the new 5 Million,” the next ten will be about being the best partner in the world for the Prime Movers, at the beginning of their startup journeys, before the rest of the world believes.
Thanks to everyone for the ongoing support
We would be nowhere without the Limited Partners who have made crazy bets on our high-risk strategy, over and over again. Even more importantly, we owe a huge debt of gratitude to the Prime Movers of the last decade who chose us as their Partner. We will do everything we can to honor what we have learned from them by being the best Partner for the tiny number of special Prime Movers who will bring abundance to the world of tomorrow.