Things To Know Before We Meet
Part 1 of not sure yet how many posts intended to de-code FPVP for you
This is the first in a series of posts intended to “de-code” Front Porch and provide more detail on who we are, what we do, and how we make investment decisions.
It won’t surprise anyone in/around this industry to hear that it is a bit of a confusing cluster — and one of our goals is to demystify our position in it for you.
So, before you meet with us, read the few paragraphs below — and save us all 10 minutes of saying the same thing that we always say and you’ll probably never remember in full because we have said it so many times that we say it too fast now!
First thing — Front Porch is a “hybrid fund.”
(What is a hybrid fund?) A hybrid fund invests in both venture capital funds AND directly into startups, but through a single investment vehicle. Our funds include 15-20 venture capital fund investments and 25-30 company investments.
Second thing — Front Porch is not a lead investor.
(What is a lead investor?) A lead investor negotiates a term sheet with you and typically joins your board for that round of investment. We are not a lead investor because it would conflict with our hybrid approach to investing in venture, which requires strong, collaborative relationships with many venture firms. This approach ensures that we can: 1) see a ton of deals; 2) provide founders a more objective perspective on the fundraising environment; and 3) have a different relationship with founding teams because you typically don’t have to see us at your board meeting.
Third thing — Front Porch is focused on the Southeast USA.
(What does this mean and what do you define as the Southeast?) We define the Southeast as DC-to-Miami and west-to (but not including, and nothing against!) Texas. All of our direct startup investments are primarily located in the Southeast. Our fund partners all have a strong presence in the Southeast, though not all of their portfolio companies need to be based in the region (that would be impractical).
Fourth thing — Front Porch is excited about the Southeast USA.
(Why?) The emotional part of the answer is that we all grew up here, are raising our families here, and have had a lot of success and fun in the startup ecosystems here.
The analytical part of the answer is that because the region is under appreciated from a venture perspective, we see a ton of great deals. (What is a great deal?) A quality company led by a strong founder with a compelling valuation. (What is a quality company?) This varies a little by stage, which we’ll outline in a future post. (What is a strong founder?) We want to write more about this, but we spend a lot of time on founder-market fit, meaning whether the founder has experience, a network, and a passion for their beachhead market. We also believe and see in the data that many of the strongest founders come from diverse and under represented backgrounds. (What is a compelling valuation?) See mildly analytical tldr; below.
The net of the analytical part of the answer is we don’t need billion-dollar unicorn exits with splashy IPOs to make our funds successful (though we would certainly take them!). In Fund 1, our average entry valuation was $8M into startups with ARR approaching $1M and revenue growth rates >100% annually, and our “10x” outcome can be a $100M below-the-fold acquisition. Companies with metrics like this in New York or the Bay Area would have an entry valuation of 2-4x (or more) what ours have been, and put huge pressure on everyone involved for a $500M+ outcome or bust.
… Please keep all of this a secret :)
Fifth thing — Are all of your direct deals through fund partners?
So far, about one-third of our direct startup investments are together with fund partners, another third are through fund friends, and the last third are through our own deal flow. All of our direct deals are directly onto the cap table, with a reserve for follow-on investment. In certain cases, we will see a deal and share it with our fund network to see if others may want to lead or participate in the funding round. (We’ll write a future post on when we do this and what you can expect if we offer it).