It is no secret that startups are hard. I certainly know that from experience! That’s both why I chose to join XFactor and also why it took me a while to decide to do so. XFactor, if you haven’t heard, is a new seed fund run by a group of incredibly bright, impressive women that I’m proud and honored to be a part of. We will be writing $100k checks to female-founded startups out of our $3M fund over the next couple of years with the aim of funding the next wave of billion dollar businesses.
Could I Join XFactor Without Neglecting My Company and My Family?
While it was immediately clear that XFactor was a spectacular opportunity to do more angel investing, work with an amazing group of women (and Chip Hazard, our “token guy”, from XFactor) and — let’s be honest — make some money, the decision to actually join the team was less clear. After all, the company I co-founded, Bitnami, is doing exceptionally well and requires just about every bit of my energy that doesn’t go to my other great commitment — my amazingly supportive husband and our 4 year old, Jack. Could I continue to prioritize Bitnami while participating meaningfully in XFactor and not neglect my family in the process?
After much thought, I came to the conclusion that I can make it work. XFactor is taking a unique approach to investments that will result in both a better experience for founders seeking funding and make it manageable for the investment partners, all of whom are currently running their own companies. Most importantly, I believe we have the ideal ingredients to generate fantastic venture returns. And that combination made the opportunity just too good to pass up.
What Makes XFactor Different
- The Investment Partners: Chip Hazard and Kate Castle, two Flybridge partners, together with Anna Palmer, founder of Wondermile, have brought together an incredible group of 9 women to drive the investments we make at XFactor. Together, we have built and scaled almost a dozen companies, raised well over $100M in venture capital, hired thousands of employees and generated significant value as a result. Unlike some investors, who have never actually built their own companies, we’re all operating founders who know what it takes to start and scale successful companies in both the consumer and B2B spaces. We will help our entrepreneurs through the difficult early days and set them up for long term success as their companies grow.
- The Model: We’re writing $100k checks to early stage startups, typically as some of the first money into the company. Rather than rely on a slow, nebulous, consensus-driven process for making investment decisions, each investment partner at XFactor sponsors and makes the ultimate decision regarding investments she wants to back. At a high level, if there is a deal that one of us wants to sponsor, we run the diligence ourselves with support of a Flybridge resource and bring it to the group to solicit feedback. We discuss investments with the team, but ultimately, the decision is ours to make. That enables super-quick turn around on investment decisions (we’ve made a commitment to get back to entrepreneurs within 3 weeks) and enables us to back companies where we are convinced of the opportunity and willing to commit to supporting the founders. And because the fund is set up such that the carry is shared equally with the investment team, we are all incentivized to help XFactor founders succeed (in other words, this is not a “scout” program.) With 9 investment partners and a $3M fund, this means that each of us will back only a handful of deals ourselves over the next couple of years, which is manageable for operating executives like us. And it also allows us to step back from sourcing deals as our own company’s needs evolve.
- The Entrepreneurs: We’re focused exclusively on backing companies with at least one female founder, which are an incredibly underserved market in terms of venture opportunities — female entrepreneurs receive only about 2% of all venture funding, despite owning 38% of the businesses in the country. Two recent HBR studies looked at how women are treated differently than men during the fundraising process, which leads to a fraction of them getting funded, and for smaller amounts. Why does this matter? A 2013 study by a professor from Stanford and the Kauffman foundation concluded that women-led high tech startups are “more capital-efficient, achieve 35% higher return on investment, and — when venture-backed — generate 12% higher revenue than male-owned tech companies.” In other words, female-founded startups are a massive investment opportunity!
Just as with any business, we have identified a gap in the market and are building XFactor to address it. We’ve built a unique product (an investment team made up of successful, operating founders that can deliver unique value to the companies that we fund), a different model ($100k investments with very quick decisions) and are planning to capitalize on it in the form of delivering stellar returns to our LPs.
Of course, I also feel great about being able to support other women in technology. I’ve always tried to do what I can to help other founders (female and otherwise) work through the challenges of launching and scaling their businesses. XFactor gives me a more powerful platform from which to do that. But, it is not a charity. And it is not just about funding women who may not be able to be able to raise funding elsewhere. It is about funding and supporting incredible women as they create the truly meaningful businesses they have the skills, grit and brains to build. It is about using our unique understanding of some of the differences in building out a business as a woman to help these women build their companies faster and better than they could without us. After all, startups are hard, and who better to help than people who have done it before?
I truly believe that there are a tremendous number of significant, untapped venture opportunities in female-founded companies. And I believe myself and the XFactor team can help to uncover and nurture them to success, generating significant venture returns in the process. I’m investing my precious little extra time to prove this, and I’m also investing in the fund myself. I’m thrilled to share that I’ve already backed my first investment via XFactor, led by an incredible woman I very much look forward to working with (details to come.) If you’re a female founder launching a bold new venture, I’d love to hear from you (I’m @ericabrescia on Twitter.)