Criteria
K9 Ventures makes select investments based on five qualifications.
Our five filters
Technical founders
We look for founders who are capable of building their own product and capable of leading the business. We look for an exceptionally high level of passion, integrity, ability, and willingness to learn. We have a strong preference for founder-led companies so we also look for the founding CEO to have the desire and the ability to lead the company and build a high performing team around them.
New technology / new market
We do not follow a sector strategy like other venture firms. Instead we look for either core new technologies or radically new markets.
For us new technology isn’t about a marginal improvement, but about fundamental change (for example Twilio). A new market is one where money hasn’t changed hands at scale before (for example Lyft) or where no company was servicing the latent need (for example eShares)
Direct revenue
We want companies where the customers pay for using the product or service directly. In other words, “I deliver value to you, you pay me.” We don’t like three-way business models as at the stage we invest it’s impossible to tell a company will become the next Google or Facebook. As a corollary, we don’t invest in companies built on media, content, advertising. Read: The case against FREE.
We’re also partial to companies that MAKE stuff or enable the MAKING of stuff. As a corollary, we don’t invest in e-commerce.
Frighteningly Early
We like to be the first institutional / professional capital into a company, ideally before the company has raised any outside capital at all and before they’re part of any incubators / accelerators. We bet on founders and their vision of the future. We don’t look for traction, because at the stage at which we invest, by definition there isn’t any.
We are also partial towards companies where the capital requirements are commensurate to the market size or exit opportunity for the company. (Read: The curse of Over Capitalization)
Hyper-local
We typically only consider companies where the founding team is located in the San Francisco Bay Area. This is not a function of where K9 is located, but because we believe that there is something that happens in Silicon Valley, which cannot be easily replicated in other geographies.
We welcome working with remote or distributed teams (a change in our thinking), but absolutely will not consider companies that plan to outsource the development of their core technology/product.
(Related posts: On Geography, Say No to Outsourcing)
What you can expect from us
Investment amount
K9’s investments can range between $250K-$750K as an initial investment, with a sweet-spot around $400K. Most of our investments are syndicated with other investors as part of a $500K-$1M financing where K9 will participate for >50% of the round.
N.B. A few years ago, this would be called Seed, now we call it Pre-Seed. If you’ve already raised non-friends and family capital, then it’s probably too late for K9 to engage.
Investment pace
As an investor that likes to actively engage with and help our portfolio companies, We limit new investments to 4-6 per year. We also try to keep the number of active investments between 6-8 to ensure that each company is getting appropriate time and attention. We’re also in no rush to invest and would rather wait for the right team and the right idea rather than be subject to an arbitrary schedule to deploy capital.
Lead/follow
As evident from our name, we’re not sheep. We prefer to lead investments and take a board seat alongside the founders. We believe in having a board to provide training wheels for the founders for the future. K9 will remain active on the board through the Pre-Seed, Seed, and Series A, and will typically scale back our involvement once the company reaches Series B or beyond.
Deal structure
K9 typically invests in a priced equity round only. We do not do convertible notes, SAFEs, or any other forms of convertible / debt-based equity. (Read: Thoughts on Convertible Notes). When leading a round we use the Series Seed documents with minor modifications.
Given our approach of being active investors and helping portfolio companies for a long period of time (measured in years, not months) we use a concentrated portfolio approach, meaning we only play if we have enough skin in the game.
Follow-on
In addition to our initial investment K9 reserves additional capital for investing in follow-on financing rounds. We fully expect to earn the right to participate in future financings and also expect that founders will afford us the opportunity to do so.
K9 will actively help companies with introductions for their future rounds and will follow on in the Seed, Series A, and Series B financings for our portfolio companies. We do not participate in Series A or Series B investments if we haven’t already invested in the Pre-Seed or Seed rounds for the company.