NFX Guild gets more serious about investing with a $150 million fund

Roughly two years after emerging on the scene as a new Bay Area accelerator, NFX Guild, an outfit run by several seasoned founders, has raised $150 million for a full-fledged venture fund.

It’s quite a ways from the $10 million that NFX used to get started, but as is often the case with these things, the firm’s ambitions have grown with time. “The bigger vision here is, we want to build a significant institution at NFX,” says Pete Flint, who cofounded the real estate site Trulia, which sold to Zillow in 2015 for $2.5 billion — after which Flint joined NFX.

Indeed, NFX, originally founded by angel investor Gigi Levy-Weiss and serial operators James Currier and Stan Chudnovsky, started out small but with a very specific premise in mind: that with the partners’ help, a good many startups could grow so-called network effects businesses. (The idea, broadly, is that the more users a product has, the better the product becomes for future users.)

Certainly, Currier and Chudnovsky had seen network effects up close at Tickle, a popular purveyor of personality quizzes that they’d cofounded in 1999 and which sold to the jobs giant Monster in 2004.

Chudnovsky — now an advisor to NFX — has also spent the last three years as the VP of Product for Messaging at Facebook, a company that has benefited so greatly from network effects that it now has a $532 billion market cap.

It’s still a bit early to declare NFX’s approach a success. The accelerator program it has built originally plugged $120,000 into startups, all of which were referred to the outfit by “scouts,” including at Greylock Partners, CRV, Mayfield, and Shasta Ventures.

In some cases, the startups were already funded in part by the venture firms but looked to NFX to help grow their businesses.

In all cases, there was no way for an outsider to apply to NFX Guild.

NFX has since funded roughly 80 companies, including several that look promising, though none has exited so far. Among some of the more interesting startups in the outfit’s portfolio are Outdoorsy, a kind of Airbnb for RVs; Ivy, a marketplace for interior design; and Wheelhouse, a startup that helps its customers price their short-term rentals.

Apparently, institutional investors like NFX’s approach even without a big sale or IPO under its belt. According to Flint, the $150 million in capital commitments that NFX has locked down come from major foundations, endowments, funds of funds, as well as 50 founders and investors who work at venture firms. (Worth noting: no venture firms are limited partners in the new fund, unlike NFX’s first fund, whose capital came primarily from the firms doing scouting on its behalf, including CRV and Shasta.)

The new fund also heralds other notable changes at NFX. Part of this involves focusing more intently on software that the firm began developing earlier this year called Signal, which aims to make it easier for founders to discern which VCs they should be approaching. Rather than develop the platform for its own, proprietary advantage, NFX is opening it to other firms with the idea that venture capital is itself a network effects business. (Certainly, it’s easy to appreciate that the more VCs and founders who use the platform, the more useful it will be.)

Says Currier of the strategy, “We’re all entrepreneurs, and this is in our DNA. We want to hep entire ecosystem.” Besides, he adds, NFX can “only invest in 1 percent of the companies we see, but we might be able to benefit the other 99 percent” through Signal.

NFX is also taking the “good parts” of its accelerator program and jettisoning the parts that weren’t working as well.

For example, instead of hosting a three-month-long program, as was originally the case, NFX will now work with startups over a six-month period. Instead of giving them $120,000, it will provide them with $250,000. And it will no longer host “classes” twice a year, as it has done from the outset, but rather admit startups on a rolling admission basis to better fit the founders’ schedules.

What isn’t changing: to apply, a team still has to be introduced to NFX through one of its scouts.

Asked about the biggest check he can imagine writing on behalf of NFX, Currier say the the most the firm is likely to invest in any one company is $5 million, with the vast majority of the checks it writes —  to companies both in its accelerator program and those outside it — will be between $1 million and $2 million.

Asked about initial coin offerings — which are using network effects in ways that startups haven’t benefited from previously — Currier says NFX is “spending an enormous amount of time of this. We think it’s currently chaotic and dangerous, with a lot of scams going on, but it’s major shift that we see continuing to roll out.”

“Will we encourage some of our companies to look at this for future funding?” he says. “Yes. We think you can use tokens to build great network effects.”

Pictured above: NFX Guild’s team, including investors Flint (far left), Currier (middle), and Levy-Weiss (far right).

Published at Tue, 28 Nov 2017 19:24:48 +0000