The Founders Fund, the San Francisco-based venture capital firm headed by ex-PayPal execs Peter Thiel, Ken Howery, and Luke Nosek, along with ex-Napster, Plaxo and Facebook exec Sean Parker, is sitting on a big pile of cash and is looking for worthy entrepreneurs. The firm today announced Founders Fund II, a $220 million dollar institutional venture fund.
The new fund marks a significant increase over the first Founders Fund, which was a paltry $50 million and was comprised mostly of individual contributions from the managing partners and other angel investors. The new fund includes outside investors in the form of limited partners, making it much more like traditional venture capital firms. While confidential, the list of LPs includes endowments and other institutional investors, reportedly including Stanford University.
The Founders Fund has concentrated its investments so far on web 2.0-type startups, including Facebook, Slide, and PowerSet.
In a conference call earlier today, the four managing partners talked about their problems with the current venture capital model: They think it is less pro-entrepreneur than it ought to be. Part of their solution, introduced last year, is what they call Series FF stock, which allows startup founders to cash out part of their stakes during subsequent funding rounds, giving entrepreneurs more liquidity than usual.
Founders Fund II is looking to make investments ranging from an angel-sized $500,000 to a $3 million Series A. Want in on the action? Here's what you need:
- Raw talent and intelligence. The investors are looking for the "best entrepreneurs they can find," and consider the quality of the founders to be more important than that of the business plan.
- Long-term relationships. Your startup's team needs to have top-notch people, naturally, but they can't be people you met yesterday on Facebook, or, as Thiel puts it, "people who met at the slot machines in Vegas and decided to get married." They have to be people you've worked with for awhile, so you -- and the investors -- can trust that the team won't fall apart at the first sign of trouble.
- Flexibility. Expect to be grilled on strategy, and markets, and what your next steps would be should your first plan fail. That's something the Founders Fund partners know a little bit about: PayPal went through six iterations before landing on its billion-dollar idea for eBay payments.
And how does a smart, flexible entrepreneur with a complementary group of cofounders attract the attention of the Founders Fund? You can cross your fingers and send your 10-20 slide PowerPoint pitch deck to submissions@foundersfund.com, the public email address for the Founders Fund, but that approach seems to be less likely to bring riches than buying a scratch-off lottery ticket. The real way to get the attention of the Founders Fund is to work your contacts. The Founders Fund "filter[s] most interesting deals through [their] network" admitted Nosek, who noted that there are certain people he trusts whose recommendation will assure that the Founders Fund takes a close look at the proposed business plan.
So brush up on your rolodex and look to establish connections with people who can lead you down a path to one of the general partners. For that job, Facebook would be a good start.
This report comes from brand-new Epicenter writer Megan McCarthy, who doesn't have keys to the blog yet. Look for more posts from Megan (with her actual byline) starting tomorrow.
