There’s not much new under the sun in the world of venture capital – look at 20 VC websites and pretty much they’re all indistinguishable. Yes, they invest in the best equipment. Yes, they are “value added”. Yeah, they… God, it’s so boring I want to gouge my eyes out with the sharp edge of a convertible bill contract. Ash Rust’s Sterling Road is a new take on everything, with a business model that turns things upside down.
The company has 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 from the beginning of its journeys, often issuing the first institutional checks to the companies in which it invests. The fund is relatively small, but it writes $250,000 checks and has some held for follow-on investments, so there’s enough dry powder for a good number of investments.
The twist is that the fund is helping first, investing later. The tone? The investor gets a deep insight into how the founders operate, think and act. The founders prove what it is to work with the investor. And if the “I like you, I like you” goes well, the union is consummated with an investment check in the company.
The firm’s thesis is antithetical to the fast-paced, FOMO-driven approach of most fundraising processes. It invariably means the company misses out on some good deals, but Rust claims that this is a feature, not a bug.
“I think a lot of time is spent chasing the last great founder. They are closing a round next Monday and you have to get to know them quickly and make all the references”, laments Rust. “Those deals are all ‘no’s’ to me. It is a respectful pass. I’m so sorry, but I can’t help you. Congratulations, but you’re too far along.”
The firm has a particular commitment to diversity.
“We still have a lot of work to do on diversity, but we strive to invest in founders who have historically received a smaller share of venture capital dollars. This could be due to race, gender, or even geographic location,” says Rust. “In our second fund, 65% of our capital went to founders with backgrounds that are traditionally underrepresented in technology. We’ll push to make it even better at Fund 3. I want to find the founders who haven’t been down those traditional paths. I myself am biracial, but I was raised in a Caucasian home. It’s easy for me to find white guys; they are in my inbox all day. If I want to find great founders with very different backgrounds and different perspectives than I do, the best mechanism I’ve found to do that is to market publicly and in a very specific area focused on early-stage founders and the content around that. instead of topical stuff like people’s latest IPO.”
The bull’s-eye for the fund is technical founders who work in an area where they have specialized knowledge, but without the experience of running startups; the team tells me that’s where they add the most value. That often means founders who are less familiar with fundraising, getting early sales, or recruiting the right teams.