What is Sprout Stage™?
Sprout Stage™ is when a company has taken its sweat equity, angel or seed capital and demonstrated a breakthrough core technology, product or brand with mass market potential. We think of "sprouts" in two categories:
1) a core demonstrated breakthrough technology: this could be a search or recommendation engine, an algorithm, or hardware with unique capabilities. For this type of technology, we are willing to invest prior to productization, though prefer a product or service to have been built on it already. Examples include Pandora's Music Genome Project or SoundHound's Sound2Sound or Speech to Meaning Engine, or goTenna's networking protocols.
2) a joyful product and brand: not all products or services have a core technology, some connect dots in a way that has not been well before or make something simpler, less expensive or more convenient than ever before. For example a game, social network, marketplace, eCommerce company, subscription service, or connected device with a unique value proposition. Companies in this category will have competed products and engaged users, even if the user base is small. Some companies have a very unique approach to how they think about their product and brand. This is who we like to back. Examples include Boombotix, Cargo Chief, TodayTix and MeUndies
Sprout Stage underscores our very product centric means of deal screening. We seek to only take meetings with companies where we are able to try the product and see a real "wow" factor in how delightful and breakthrough it is. At that point, we become very interested in the team, the progress, the plan and opportunity. With all the distractions and overload, we believe that great products are immensely important to drive easier selling, word of mouth and faster adoption. We seek to back companies who have true mass market potential.
How does Sprout Stage™ fit into the venture capital ecosystem?
Venture capital has a vibrant ecosystem from seed and angel investors to the expansion stage VCs, private equity and corporate strategics. The venture capital industry has seen a barbell style growth with a proliferation of seed/angel on one side and larger expansion stage VC funds on the either. According to UNH VC Center, there are over 70,000 seed/angel financings done per year, yet there are fewer than 2000 Series A financings per year, by 100-125 VC firms that act as lead investor. This transition from the seed/angel to institutional investor is often referred to as the "Series A crunch". Walden Venture Capital’s Sprout Stage strategy fills the chasm between these two barbells and shares some characteristics with each.
Like a larger VC, we are life-cycle investors so will pursue follow-on investments. We will join the Board and are available to work actively with the team on strategy, product, partnerships, recruiting/HR, sales, marketing and finance. Unlike a large VC and more like an Angel investor, smaller rounds are the core of our strategy and garner our full attention. Hence we are strongly aligned with the founders on building equity value, not focused on putting money to work. Unlike a typical angel, we are not sprinkling seeds in ideas to see what might grow, but instead focus our attention on fewer sprouts.
We seek to know angel and seed investors and their portfolios and look for the companies that have "sprouted".
What is our typical investment?
Our initial investment depends on the capital needs and stage of the business. Our sweet spot is an initial investment of $1 million to $4 million of a $1.5-8 million round. We usually lead first institutional financing but can join as a syndicate partner as well.
What is our sector focus?
Our target sectors are digital media and cloud services for consumers and enterprises including infrastructure, services and content. These are industries where the Partners have passion, experience and insight. Our portfolio includes leaders in entertainment (including music, games, and video), software, cloud services, branded eCommerce, internet media search, artificial intelligence, hardware and connected devices. We seek new investments that push the limits of categorization and leverage new and existing infrastructure and technologies in exciting ways.