Fourth Realm: Year-in-Review 2020

We don’t need to rehash the hardships that 2020 brought on everybody. Instead, we want to highlight the positives that we witnessed — specifically, the resilience and the courage of those entrepreneurs we met who, despite going through one of the worst economic periods globally since the Great Depression, could not resist their entrepreneurial calling, choosing to leave the safety of their jobs and embark on their startup journeys.

It was this same entrepreneurial spirit that inspired us to create Fourth Realm last year. In the six months since we wrote our first check:

  • We completed 15 investments
  • We invested over $1.5M
  • We gained the backing of over 500 investors ranging from family offices to Fortune 500 executives to prominent tech leaders
  • We achieved our first markup from our first investment: a 1.98x MOIC in less than 6 months (over 175% IRR)

This not only serves as our first Year-in-Review, but also the first chance we have had to formally introduce ourselves to you — as an emerging firm built by an investment team with diverse backgrounds.

Fourth Realm is a venture capital firm that supports entrepreneurs on their respective journeys from pre-Seed to pre-IPO. Our first fund (planned for H2 2021) will be focused on early-stage opportunities, while we continue to offer ad-hoc late-stage opportunities to our LPs.

We want to avoid investing via mindsets that lead to stale and rigid thought-patterns. In the months that we have been active, a few themes have surfaced:

  • Productivity stacks for specialized teams
  • Digital sell-through channels built upon consumer products
  • Technologies that unlock supply-constrained markets

Our scope isn’t restricted to these themes. Venture funding is at an all-time high and shows no signs of slowing, leading to more innovation across overlooked industries.

Throughout 2021, we will expand on more themes. Instead of forcing founders into our vision of the future as an industry-specific firm, we prefer to subscribe to theirs. As we begin investing from Fourth Realm Fund I, we will expand the ways we partner with the exceptional entrepreneurs we encounter day in and day out. Our work in 2020 was just the beginning.

Who are the people behind Fourth Realm?

We built Fourth Realm to partner with entrepreneurs that aren’t shying away from odd problems or overlooked markets. We acknowledge we aren’t smarter than the best teams solving the hardest problems — our goal is to find the ones executing on massive visions and to assist where we can.

While we thematically invest, we also want to bring a diverse range of background expertise to our portfolio. Though every member of our team has invested at institutional venture funds and has worked at top venture-backed startups, we all come from widely different personal & professional backgrounds. These are our partners’ stories:

Jack

“Your background just doesn’t make our capital competitive.” Feedback I will never forget. I had made it deep into an interview process for an associate position at a brand name fund and that was their parting feedback that accompanied the “no”. I felt it was a legitimate reason at the moment and still do given their fund model, but how I’ve constructed my outlook around it has shifted over time.

I initially took that feedback, looked at the associates and principals across VC, and tried to replicate their paths. This was a mistake. My alma mater’s — Middle Tennessee State University — business school isn’t even ranked so I was never going to have the Stanford or Ivy-caliber provided network, I was never going to have the same brand name companies that are on their resumes, and I sure as hell wasn’t going to rely on home-town connections when coming from a small town in Tennessee. I was too focused on breaking into venture rather than building anything of value.

I began to look through the scope of a Venn diagram — finding where I can overlap while bringing supplementary skill sets and networks that are distinct from other investors. While early-stage venture obsesses about high pedigree founders building in hot spaces, it often overlooks strong founder-market & founder-problem fit in non-target ones. I saw this as an opportunity and began to identify strong teams who have asymmetric advantages in the markets they’re building in.

In our experience, we’ve found proprietary deal flow is a fund manager’s marketing term and not much more. Proprietary value-add, on the other hand, can lead to unique investment opportunities. This is why we’re focused on building a proprietary network across industries that nobody can replicate. These networks are where we provide value beyond the dollar and that value leads to an ever-strengthening, repeatable process.

Although my background may be different, I think any foundation is powerful if utilized in the right ways. While I lean on my finance experience across family office advisory, building the 409a valuation team and product at Carta, and venture investing at Hone Capital; I strive to bring an entirely new perspective that historically hasn’t had much overlap with Silicon Valley.

I’m what the industry calls non-target and I proudly back founders that are building in non-target industries, building for non-target users, or have non-target profiles themselves.

Sahil

Everyone has heard the saying that the world’s largest organizations can’t change. I saw this first hand every day when I was working with Fortune 500 executives at Plug & Play Ventures. Despite what industry these senior decision-makers came from, they all struggled to stay ahead of technological shifts. For these corporate giants, innovation was slow, tough, and marred in tons of cultural and human capital challenges.

This was a far cry from my time in venture capital at firms like GGV Capital, OpenView, and Anthos Capital where I saw entrepreneurs day-in and day-out who preferred “to move fast and break things.” I realized that there was a massive divide, culturally and practically, in getting these two sides to work together.

When I evaluate whether there’s a mutual fit for investment between Fourth Realm and a startup, I like to deep dive on product and go-to-market strategies. Whether consumer or enterprise, all startups have opportunities to partner with much larger organizations; I focus on evaluating and unlocking this potential.

At PNP Ventures, I started several global acceleration programs and oversaw our investments in supply chain & logistics, enterprise software, and other foundational industries. Spending hours a day with F500 executives (ranging from senior business unit managers up to the C-suite) was an eye-opening experience into a world that the tech community rarely perceives: large corporations that know they have to react to disruption in their industries, but have too much inertia to take meaningful action. I also worked in tandem with founders to prepare them for enterprise sales, familiarizing them with the intricacies of navigating budget cycles, layers of decision-makers, and readiness/compliance (think SOC 2, HIPAA, etc.)

At Mapbox, I moved to the other side of the table to tackle product strategy. I worked on entering the automotive and logistics markets (both are heavy users of navigation software), focusing on bridging the gap between Mapbox’s product and go-to-market. Between joint ventures in APAC and key deals with BMW, I know the strategies and psychologies behind landing wins that make splashes globally. Paired with blocking and tackling (things like analyzing product pricing or building out sales operations), my toolkit helped close eight-figure contracts.

If you lead a startup who wants to partner with or sell into organizations much larger than yours, reach out to me and let’s strategize more.

What have we done this year?

Fourth Realm is our version of a startup and our AngelList syndicate has been the minimum viable product (MVP). With this proof-of-concept, we focused on honing our process while exploring these questions about its potential:

  1. How strong is our early-stage deal flow funnel?
  2. If strong — what is our ability to secure allocation in selected companies?
  3. If we get access — can we build a strong LP base around these opportunities?
  4. If we can build an LP base — can we build a repeatable and scalable process?

We found we were able to achieve all of the above. We closed our first investment out of the Fourth Realm syndicate in August 2020. Since then, we’ve closed investments in 15 companies with 2 more in the process of closing, totaling over $1.5 million invested. Fourth Realm has grown from 0 to over 500 LPs on AngelList and we’re creating an ecosystem of investors off-platform as well.

During Q3 and Q4 2020, we saw over 400 high-quality companies led by amazing founders. While we’ve had access into many of these opportunities, we’ve chosen a select few to invest in via our syndicate. We purposely syndicated only companies we would invest in via a traditional fund model.

We constantly ask ourselves these two questions:

  • What are we doing to ensure that founders are happy with Fourth Realm on their cap tables (i.e. “high founder NPS”)?
  • How are we helping founders, both within and outside our portfolio?

In our efforts to make Fourth Realm a firm that founders seek out when fundraising, we strive to accelerate founders before, during, and after our investment. Many times, we help even those startups where we did not ultimately invest. A few ways we’ve assisted have been:

  • Converted multiple NFL teams as clients for a social media company with over 200 million MAU.
  • Brought a top musician/DJ (often within Billboard’s Top 100) with us into a fundraise as co-investor and strategic advisor.
  • Designed a growth-by-acquisition strategy for a portfolio company.
  • Orchestrated contract discussions with a top-10 audit firm’s national practice head for another portfolio company.

We aim to be the best team member not on the company’s payroll.

What are our plans?

We created our AngelList syndicate on the premise of running it as Fund 0.5. In only two quarters (Q3 and Q4 2020), we built a strong LP base while still being selective in who we accepted in. We’ve built an amazing community of startup operators, executive leadership across a plethora of industries, family offices, and other professional investors that have been instrumental to building the Fourth Realm brand and network. We intend to continue to build and invest through our syndicate.

Starting in Q2 of 2021, however, we will begin the process of raising Fourth Realm Fund I.

This fund will be dedicated to our early-stage investing efforts: from pre-Seed to Series A. Our target is $20M. Excess allocation and follow-on opportunities will go preferentially to fund LPs first and foremost. For deals previously completed via AngelList syndicates, we will carve out a portion of future round allocation we secure to the backers of those deals — y’all were our first supporters.

We’ve learned a few lessons that were major catalysts in our decision to raise our own fund:

  • We need the ability to act on incomplete information: AngelList syndicates are typically “last-money-in”, requiring full knowledge of a financing round before any commitment can be made. That makes us reactive, rather than proactive. By the time Sequoia or Insight commit to a startup that we’ve been engaged with, no allocation remains for “last-money-in” participants.
  • We need the ability to move quicker: AngelList syndicates take a minimum of two weeks, between forming an entity, receiving capital commitments, closing the transaction, and other administrivia. With entrepreneurs always eager to wrap up fundraising, we have missed out on top-quartile opportunities due to the currently slow speed of our capital.
  • We need the ability to have flexible check sizes: AngelList syndicates have a tight range on viable investment sizes. We’ve experienced opportunities that were best leveraged with small checks where we built relationships with top teams early. Other times we’ve wanted to write larger checks based upon strong conviction when these startups had outlier levels of performance.

What have we invested in?

We’ve invested across a range of verticals from farming, to space launch, to audit and even art. To date, here are our announced investments:

  • Avion School (Southeast Asia): World-class software engineering courses for Southeast Asians.
  • Barn2Door (USA): Online storefronts and e-commerce software for farms.
  • Chiper (Latin America): Data-driven management platform for Latin American corner stores.
  • Emulate Bio (USA): Organs-on-Chips technology for medical research.
  • Expedock (Southeast Asia): Workflow automation software for freight forwarders.
  • Fieldguide (USA): Workflow and automation platform for assurance and advisory services.
  • Gr4vy (USA & Europe): Cloud payment orchestration platform.
  • Overfit (USA): Human and AI-driven personalized fitness coaching.
  • PAKT (USA): Infrastructure for applications and websites to offer white-label insurance.
  • Parlor (USA): Loan-to-own platform for art from leading art galleries.
  • Pico (USA): Signup and payment tools for online communities.
  • Quo (USA): Products for financial safety, including budgeting apps and microloans.
  • SpaceX (USA): Private spaceflight provider focusing on large reusable rockets.
  • STOKE Space (USA): Reusable rockets for small-to-medium payloads destined for space.
  • talkshoplive (USA): Social shopping network featuring live interaction.

We invest solely on high conviction from our team and do not chase co-investment brand names (though we understand that brand names drive deals syndicated on AngelList). Many times, our capital commitment came earlier than the high-signal investors we participated alongside. For instance:

  • We committed to one company before NFX led the round.
  • We committed to another company prior to Floodgate and Point72.
  • We committed to a third company prior to their decision to accept a SignalFire term sheet over other top-tier offers.
  • We committed to Gr4vy when it was only a small angel round, prior to Activant Capital and Global Founders Capital.

Nevertheless, this is a sample of venture capital firms that we have either invested before or alongside:

We believe investing in underserved industries will naturally build a diverse founder profile and we embrace that. We’ve invested in a variety of geographies to date with companies across the United States, Southeast Asia, Latin America, and Europe. Half of these companies have ethnically minority (co)founders; four have female leadership; and several have founding team members within the LGBTQ+ community.

We don’t highlight this to pat ourselves on the back. Rather we want to show that we truly do not care what you look like, what you identify as, where you’re from, or what your background is.

If you’re a founder taking on the challenge of building a startup, no matter where in the world you are and no matter what stage you are at, we want to hear from you.

Shout-outs and asks

The founders we’ve backed have taken as big of a chance on us as we have on them. Thank you all for allowing us this opportunity and we hope to continue to bring outsized value on our check sizes.

To our LPs, thank you for backing us and believing in our team. The purest form of belief is through time and money and you’ve trusted us with both. We’re truly grateful for your support and have loved building a community of like-minded individuals. If you know anyone who’d be interested in joining this community, please have them join our syndicate. And as always, if you have any questions, please reach out to any of us over email.

For anybody searching for their next opportunity, please find our portfolio here — they’re hiring across the board and we’d love to connect you with them.

@NontargetVC — Partner at Fourth Realm VC. Nontarget alumni investing in Silicon Valley. Ex-Carta/Ex-cel Monkey/forever a lover of DCFs