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While I started my career working with enterprise clients and government agencies, I’ve progressively moved earlier as the years have moved on. As I migrated from consulting, to PE, to multi-stage, to early-stage and then seed, I saw how different the “work” is at each of these stages. Over the last two years, we’ve been fortunate to get involved with some outstanding companies PRIOR to their seed. Not their pre-seed, but rather pre-incorporation. We call this “Before Day Zero”.
In these cases, we are working with founders before they’ve even started their companies – helping them formulate the thesis, think through strategy and help set the company into motion. We’ve seen a lot of early success with these companies and I’ve found it incredibly rewarding, so our firm wanted to share a bit more about our efforts in what we’re now referring to as our “Hatch” program.
The term “Hatch” is one that we’ve borrowed from our friends at General Catalyst, famous for “hatches” such as Kayak, DemandWare and Datalogix. Ali previously interned with GC and when he joined me at Lightbank (a firm that also has an amazing track record for company formation / incubation), it was something we spent a lot of time thinking about.
Over the years, inception-stage investing has grown immensely in popularity, with options ranging from accelerators, to studios, to residencies or straight up investing. I don’t have an opinion on what model is best, but I often think back to a conversation I once had with Joel Cutler (one of the founding partners of GC), where he outlined a few key principles to operate by. Three takeaways I had from that conversation were:
Only do this if it’s a founder that you would back regardless of what they were doing
Only do this if this is an idea that you are so passionate about that you would do it yourself
Focus on being in the best possible company, not just having the best possible ownership at entry stage
Given our concentrated style of thesis driven investing, I felt these principles strongly aligned with the way we invested over other models. We believe that “fortune favors the focused” - great outcomes come from going deep, not wide. As we work with founders, we find that our resources and network are most effective when we can concentrate them on a few discrete opportunities where they can be most impactful, rather than spreading the peanut butter too thin across too many companies. Lastly, on a more personal note, I’ve come to the point that the people I work with are one of the most important things in my life and having the opportunity to work with truly A+ players that I know and respect unleashes a level of excitement, fulfilment and productivity that I’ve grown to love.
Time is scarcer than capital and this orients us to focusing on working on the opportunities that excite us the most with the humans who excite us most - we view this as a winning formula for not just investing, but life. It’s for that reason, that we’ve leaned in heavily into the “hatch” model over the last two years (after experimenting with it at both Lightbank and the early days of Equal) and are planning to lean further in during the years to come.
The results of our efforts here have been pretty clear. Across the various hatches we’ve done over the years, the companies have raised hundreds of millions of dollars. We see high rates of progression (every single one of our hatches has raised a subsequent round at a higher valuation) and it’s clear that a few of these companies will become some of our most valuable positions. Ultimately, this has very little to do with us, and everything in the incredible teams we are fortunate to partner with during that process.
So what does this program look like? We’ve highlighted the responses to a few of the most frequently asked questions below.
What does Equal bring to the table?
Whatever you need. We are not operators, we are enablers, but many founders find immense value in the research and network we can help facilitate. We work on ideation with these founders before they’ve even thought about starting a company. We line up customer / design partner intros within our “Bridger” networks that provide early vetting, validation and revenue for these companies (often before code is ever written). Our team rolls up its sleeves as part of your founding team. You don’t get a single partner, you get 3 (often with others chipping in) as part of our “3 Hats” model to support founders.
What does that cost?
Nothing. We don’t do contracts, we don’t ask for supplemental equity and we don’t have any funky structures in our term sheets. We’re simply invited collaborators to that process and we’re confident that the work that we put in prior to us funding shows exactly why we’re the type of partner you want for the long haul.
Who is this a fit for?
Generally speaking, we partner with experienced operators who are close to our firm. Several of these folks have previously built $1b+ businesses, but that’s not a requirement. Sometimes this has been founders we’ve worked with in the past, other times it’s those with close ties to those in our network. Sometimes founders have prior experience in the industries they’re targeting and sometimes they don’t – either way, we’re confident we can be an invaluable partner in helping them evaluate pathways and open doors on the way to PMF. Always, it’s folks who demonstrate the qualities that we value most – integrity, curiosity, self-awareness and grit. We’re not looking to be training wheels, we are looking to be a platform for your rocket to launch from. That requires a certain measure of experience on both sides and we find that often our MOST experienced founders leverage us the most.
In a world where venture capital is scaling at an insane pace, this is far and away the LEAST efficient way to put capital to work. That said, our job isn’t to put capital to work – it’s to be the best damn partner we can be to our founders and LPs. We’ve kept our fund sizes disciplined so EVERY investment we make matters and have seen >90% of our investments graduate to higher valuations because of the attention and detail we put into evaluating and partnering with each of the companies we invest in. Simply put, this is very different from anything else out there that exists today.
While my wife would attribute our proclivity for hatching to my FOMO for never being a startup founder myself, I truly believe this is where our firm can shine brightest. “Before Day Zero” is where our connections (Bridger networks), conviction (deep research) and capital matter most in empowering founders on their journey to building category-transforming icons. While there are many styles to investing (even within our firm), this is one that feels uniquely special to how we operate at Equal given the deep relationships we’ve fostered with these founders and the totality of resources and support we can bring to the table at such an early stage.
If you are interested in working with Equal “Before Day Zero” to build a category transforming icon, please fill out the form linked here.