From the founding of 645 Ventures a decade ago, Aaron Holiday and Nnamdi Okike believed that software tools enabling data-driven decision-making should play a greater role in the networking-driven world of seed-stage investing.
“The idea that you could actually bring automation and more due diligence to the seed stage was not common,” said Holiday.
The co-founders had prior experience that led them to this thesis. Holiday, a software engineer in equities trading at Goldman Sachs, brought those skills to the venture. Okike spent nine years at Insight Partners and saw the value from Insights’s Onsite team supporting portfolio companies with growth efforts.
“One of my learnings [at Insight] was that a really good platform team can be very valuable, not only in winning deals, but helping companies post-investment,” said Okike, referring to the firm’s in-house software developers.
645 Ventures’ first fund was a scrappy $8 million seed round announced in 2014. In late 2022 the firm raised its largest funds ever with $350 million across two; a $195 million fourth flagship fund and a select fund of $153 million.
Seed- and early-stage venture is a network-driven business. However, what differentiates 645 Ventures is that it has also built its own software to source investments at the seed stage.
On its outbound process, reaching out to companies directly, Okike had this to say.
“We’ve also built the outbound deal-sourcing model. And that’s something that’s pretty unique for our stage,” said Okike. “There are ways for us to show the founder how we can help. And it’s also a way to figure out how good those founders are, because if they go and pitch one of those companies, and it becomes a customer, you have a sense of the quality of the product as well as their sales ability. So it’s informal due diligence.”
The research-focused investment team reviews thousands of companies every month, looking at companies that have traction, often in sectors overlooked by venture.
Getting to A
“We pretty much brought growth-equity practices and due diligence to the early stage — which lowered our loss ratio,” said Holiday.
“We have models around what makes a great founding team or what makes a great market, or what qualities of product you should be looking for with exceptional companies at the seed stage, and we try to quantify that as much as possible,” said Okike.
The firm claims that over 50% of its portfolio investments at seed get to Series A.
“If a bigger percentage of your businesses don’t fail before Series A, you just have more chances to return the fund business over time,” said Okike.
As the market has returned to capital-efficient growth in recent years, several portfolio companies with steady revenue growth were acquired, said Holiday. These include real estate management platform Aryeo acquired by Zillow, direct-to-consumer mattress seller Resident by Ashley HomeStore, identity threat company Oort by Cisco, and property intelligence platform Betterview acquired by Nearmap.
Portfolio company FiscalNote, a government data and analytics company, went public via a SPAC listing in August 2022. (Its value is down significantly from its listing of $1.3 billion.)
645 Ventures plans to invest in 30 companies from its fourth fund. Each fund is typically invested over a three- to four-year period, with follow-on over a longer period. For the select fund, 80% will be invested in its best performing companies.
In the past year, 645 Ventures has built out its organization. The firm has 21 team members across its New York and San Francisco office with a combined research and investment team, a success team, an engineering team and investor relations.
“We like to say our model is software systems and human systems working together,” said Okike.
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