Fourth Realm: Year-in-Review 2021

We launched Fourth Realm formally in 2020, with 2021 marking our first full year of investing in amazing entrepreneurs. We see ourselves (in our journey to build an enduring venture capital firm) as entrepreneurs too, constantly learning and iterating on what makes Fourth Realm uniquely special to both LPs and founders.

Here’s what we learned about ourselves in 2021:

• We look for founder-problem fit.
• We look for markets being pushed to evolve by intense tailwinds.
• We look for step-function changes.

If you subscribe to these philosophies — whether as a builder or as an investor — we’d love to connect with you and discuss further. If you’d like to see investment opportunities fitting this criteria, join our syndicate.

Note: While Fourth Realm has a focus on both early-stage and late-stage venture, we will only be highlighting Fourth Realm’s early-stage venture portfolio in this update. It is not inclusive of our late-stage investments in companies such as SpaceX, Stripe, and Sourcegraph.

Exceptional Performance from Our Investments in 2020

We closed our first investment (TalkShopLive) from the Fourth Realm syndicate at the end of July 2020. With over a year of progress, we think it’s a good time to look back and take a first look at how our 2020 investments in aggregate are performing:

Based on industry benchmarks (published by Cambridge Associates and PitchBook), Fourth Realm’s 2020 performance is top-decile, meaning that we rank among the top 10% in the venture capital industry.

Being in the top decile is especially important in venture capital because startup outcomes are driven by the power law: put simply, big wins are disproportionately concentrated in the hands of relatively few investors. For example, the difference between a top-decile fund and a median fund at the end of 10 years can be getting 5x your investment back vs. losing over 50% of your investment. Fourth Realm takes a deliberate and targeted approach to startup investing — co-investing with the world’s best venture capital firms — in order to maximize our chances of continued top-decile performance.

Some people ask us how venture capital performs in economic slowdowns. We generally believe venture capital does exceptionally well in these times: some of the biggest startup successes in Internet history (SpaceX, Stripe, Uber, Airbnb, Mailchimp, Snap, and many others) were founded in and cater to the beginnings of recovery. We charted out our 2020 performance against the S&P 500, one of the most heavily used public market equivalents:

Promising Markups Throughout Our Portfolio

As for the rest of our startups, most of them are still executing against their original plans and haven’t yet encountered the need to raise additional capital. For many of our 2021 investments, not even a year has passed since they last fundraised.

However, some of those startups have found incredible product-market fit and have completed new financings. At Fourth Realm, we only recognize markups when significant financing milestones occur. We have assembled a chart to visualize the markups (and one markdown) that have occurred throughout our portfolio:

One very recent markup happened so quickly that it quite literally broke Google Sheet’s IRR calculator; we ended up having to manually calculate its IRR. While an IRR of 38,000% is eyepopping — it implies that an investment would have to increase 38,000% per year to be equivalent on a time-value-of-money perspective — this is more an artifact of timing. This IRR will drop to more closely match the rest of our markups over time.

Speaking about the rest of our markups, they are quite promising and we believe that their momentum will continue in the coming years. Another way to visualize these changes is from an investment multiple perspective:

We suffered one markdown, in which the founders decided to return 0.6x of the capital after deciding they could not find product-market fit. The other changes, totaling 17 markups, represent incredible progress. We continue to work closely with our entrepreneurs and aim to reinvest in their startups as they grow.

News from Our Companies

Superconductive: Data permeates every facet of how modern companies operate. Many standout companies have built infrastructure around the movement and storage of data, but our May 2021 investment into Superconductive lived around the thesis that the best work on bad data is still bad. Superconductive, which recently raised $40M in a Series B led by Tiger Global (Index Ventures, CRV, and Root Ventures also invested), is building the tools to ensure high data quality.

Fieldguide: Fieldguide is a stellar example of software’s ability to augment, not automate, skilled work. Regulatory and compliance demands from tailwinds like privacy regulation, ESG factors, and cybersecurity concerns are forcing audit and advisory firms to evolve. We recognized this urgent need back in September 2020 when we made our first investment. In March 2022, Fieldguide closed a $17M Series A from 8VC, Floodgate, and others.

TalkShopLive: Little known in Silicon Valley is the livestreaming / social commerce company of TalkShopLive. The rest of the USA has likely encountered TalkShopLive though, because the startup has been Walmart’s official livestream shopping partner for the last year. We made a pre-Seed investment in July 2020, before anyone in traditional venture hubs had heard of the company, with conviction around their embedded streams and embedded shopping. Since then, TalkShopLive has landed $9M in new funding from Spero Ventures and Raine Ventures.

Gr4vy: As far as founder-problem fit goes, we can think of no better person than John Lunn, the CEO and founder of Gr4vy. We have invested into Gr4vy twice (November 2020 and March 2021) behind the vision of a payment orchestration platform for merchants, a layer that optimizes between the vast array of payment providers (differing in supported geographies, fees, payment types, and more). John, a longtime executive from PayPal and Braintree, closed on an additional $15M in financing from March Capital in January.

STOKE Space Technologies: In December 2021, STOKE Space raised a $65M financing led by Breakthrough Energy Ventures (Bill Gates’ cleantech-focused venture firm) with other top venture capital firms like Spark Capital, Global Founders Capital, and Point72 investing. STOKE, a December 2020 investment for Fourth Realm, is building fully and rapidly reusable rockets, with special emphasis on a reusable second stage (SpaceX, another one of our investments, perfected reusing its first stage boosters), out of its facilities in Washington. We see STOKE as bringing about a step-function change that would unlock precision launches into highly specific orbits, rather than the rideshare launch models of today.

Some written congratulations on a Medium page cannot fully encapsulate the hard work, the irrational optimism, and the grit that all of the startups we’ve partnered with demonstrate daily.

We’ll be back with more updates and perspectives soon! In the meantime, please reach out to me if you have any questions, thoughts, feedback, or opportunities.