Bigger and Better, but Still Small at Heart

Today is the start of a new chapter here at Primary! We are incredibly proud to announce the close of Primary Fund II, a new $100 million vehicle. This is an exhilarating moment for us, in no small part because it means we get to continue doing what we love: Partnering with some of the best founders in NYC and working to support them as they build industry-redefining companies. Ben and I have watched the NYC Tech market transform and evolve over the last 20 years, and it’s been thrilling to be a part of this community as the caliber of talent and the scale of companies has taken off and continues to make an ever-growing dent in the broader US and global tech markets.

By the same token, this is a hugely humbling moment as we acknowledge the unwavering support of our dedicated LPs, who have demonstrated their confidence in us by reinvesting in this second fund. When we raised Fund I in 2015, it was hard. Really hard. Ben and I had entered into a new partnership, with a new and evolving strategy, and we were, ourselves, an unproven team. We had good track records independently, but as tends to happen when dealing with institutional investors, we got a ton of No’s from people who politely told us they liked our story, but wanted to see it come together with time. We understood; no one — particularly institutional LPs — wants to be the first to jump out of the plane.

It was a courageous group who took the leap with us then and contributed the capital that became PVP I, a $60 million vehicle that we finished investing out of earlier this year. We will be forever grateful to that group for launching Primary into business, and we look forward to continuing to deliver returns that reward their courage. Here’s a quick look-back at what we accomplished over the course of Fund I.

A year ago, as we began nearing the end of the initial investing period for that first fund, we sat down to lay the groundwork for our next chapter. In doing so, we reexamined the key assumptions that formed the underpinnings of our original thesis and strategy back in 2015:

• NYC Focus: NYC is continuing to grow and mature as a tech market, and it will provide more than enough opportunity to support a geographically dedicated Seed investor of scale.
• Seed Focus: For us, there’s no such thing as too early — angel round, pre-seed, etc. We make it our business to develop relationships with entrepreneurs as early into their process as possible, often working closely with founders-to-be who aren’t yet even sure of what they want to build.
• Round Leaders: There are lots of sources of Seed capital out there, but very few that are able to dedicate the resources necessary to lead rounds. That’s true not only in terms of check size, but also from a human resources standpoint. Being a lead investor takes time; any individual partner can do it 4–5 times per year at most. We are high-conviction investors who are committed to putting in both the time and money for the right opportunities.
• Portfolio Diversity: NYC has moved convincingly beyond its early FinTech, AdTech and brand-based roots, and will continue to produce a diverse group of founders across sectors.
• Real Impact: There is an opportunity to move the needle on Seed-to-Series A success by building a firm with resources that are explicitly focused on addressing the areas that matter most to founders at the Seed stage.

These facts formed the foundational layer for our first fund, and it was a particularly refreshing moment to reflect and realize that all of the boxes are still checked — perhaps more so now than ever. When it came time to contemplate Fund II, we didn’t hesitate for a millisecond about continuing on this same course.

So why the larger fund?

Great question. When we started raising this second fund, we began the process by having conversations with a select group of LPs who had said No to us last time. These were folks whose opinions we particularly valued and respected — institutions with active seed and micro-VC investing programs and that met with literally hundreds of funds, investing in just a small handful. We were psyched when four of these groups — institutions that know as much about our business as we do — came around and said Yes this time. They told us three years ago that they liked our story but wanted to see us execute, so it was very rewarding when they chose to dive into the pool this time around.

Working closely with that core group and a subset of our Fund I LPs, we put a lot of thought into just what the right fund size would be. We didn’t want to get bigger just because we could; we wanted to grow thoughtfully and strategically. We originally targeted $80 million, but as interest in our story quickly surpassed that number, and as the market continued to evolve, we decided, in consultation with our core LPs, to cap the fund at $100 million.

There were two real drivers behind the decision to grow our second fund by 67%. The first is the fact that the Seed market has undeniably changed. Seed rounds have grown. A lot. Three years ago, the typical Seed round was $1.5-$2 million; today we see hardly any sub-$2 million Seeds, and instead frequently see $3-$4 million deals. If we want to continue to be a high-conviction firm that can comfortably lead Seed rounds (and on occasion do the entirety of one), we needed a bigger fund. We felt strongly about sticking with our pace of doing 25–30 deals per fund, which meant we needed a fund of sufficient scale to allow us to continue playing the same game in this new environment.

The second reason for the larger fund is that the Series A goalposts have materially shifted. Series A success now requires companies to be more mature, to have demonstrated real metrics that prove product-market fit and the beginnings of a path to profitability. Some of that is solved for by larger Seed rounds that can get a company further, but it’s just as important for Seed syndicates to have plenty of dry powder to support good companies that need a bit more time to mature.

Upon deciding to go bigger, we realized that a larger fund would provide us with valuable additional resources at the management company level. We’ve differentiated ourselves, in part, by having one of the most robust Portfolio Impact teams in the business (ours makes up 50% of our professional staff) and we’ve invested in that group heavily from Day 1. We have built a team of A+ specialists — encompassing talent, finance support, market development and PR/communications — that work with our companies as they tackle all manner of challenges on the journey from Seed to Series A. And now, with a Seed-to-A graduation rate of nearly 90%, this model has beyond proven its value. But we’re not even close to done with our work here. With the additional resources at our fingertips in Fund II, we will continue to invest in this team and broaden our service offerings (we’ve already brought on three new hires in the last few months) so that as our portfolio grows, we are able to provide our companies with even greater levels of support than they receive today.

So what can you expect to see from us in the next few years?

The bets we placed as we planned Primary I four years ago hold true to this day. Expect to see us staying laser-focused on NYC — a maturing marketplace with a growing talent pool of incredible founders and operators; maintaining our high-conviction Seed-stage (and even “pre-seed”) investment strategy, getting to know entrepreneurs as early as possible, and leading most of the deals we do; and adhering to our original mission of ushering our companies to a successful Series A with the support of a growing pool of hyper-localized Portfolio Impact services. It’s a slightly bigger version of what we’ve been doing, but at a scale that we think finds that Goldilocks “just right” balance of being big enough to be better without losing sight of exactly what business we’re really in.

We are beyond thrilled to begin this next chapter and to continue partnering with the next wave of exceptional leaders in the most exciting tech community on the planet. If you know of one of them (or are one yourself), please let us know!