There’s not much new under the sun in the venture capital world – look at 20 venture capital websites and they’re pretty much all indistinguishable. Yes, they invest in the best teams. Yes, they are “value added”. Yes, they… God, it’s so boring I want to gauge my eyes with the sharp edge of a convertible note contract. Ash Rust’s Sterling Road is a new take on it all, with a business model that shakes things up.
The company just raised its third fund, weighing in at $20 million, after its first two funds, which were $3 million and $9 million, respectively. The firm focuses on B2B companies at the very beginning of their journey, often writing the first institutional checks to the companies in which it invests. The fund is relatively small, but it writes checks for $250,000 and holds some for follow-on investments, so there’s enough dry powder for a good number of investments.
The twist is that the fund is to help first, invest later. Field ? The investor has an in-depth view of how the founders work, think and act. The founders get a taste of what it’s like to work with the investor. And if the “I like you, do you like me” works well, the union ends with a check for investment in the company.
The business thesis is the antithesis of the fast-track, FOMO-driven approach of most fundraising processes. This invariably means the company is missing out on great deals, but Rust claims this is a feature, not a bug.
“I think a lot of time is spent chasing after the latest hot founder. They close a round next Monday and you need to meet them quickly and do all the references,” laments Rust. “These deals are all ‘no’ to me. It’s a respectful pass – I’m so sorry, I just can’t help you. Congratulations, but you’ve come too far.
The firm has a particular commitment to diversity.
“We still have a lot of work to do on diversity, but we are striving to invest in founders who have historically received a smaller share of venture capital. It could be due to race, gender, or even geographic location,” Rust says. “In our second fund, 65% of our capital went to founders from backgrounds traditionally underrepresented in tech. We will strive to do even better in Fund 3. I want to find founders who don’t have followed these traditional routes. I’m biracial myself, but was raised in a Caucasian family. It’s easy for me to find white guys; they’re in my inbox all day. If I want to find great founders from very different backgrounds and with different perspectives than mine, the best mechanism I’ve found to do this is to market publicly, and in a very niche area focused on early career founders and the content that surrounds it, rather than hot topics like people’s latest IPO.
The center of the target for the fund are technical founders who work in a field where they have specialist knowledge, but without the experience of running startups; the team tells me that’s where they add the most value. Often that means founders less familiar with fundraising, getting early sales, or recruiting the right teams.