Venture capitalists may control capital, but one currency that they’re always in search of is an elusive, evolving one: deal flow. Betting early on the next big startup is enough to cement the entire return of a fund (and then some) — and help that plucky investor make a name for themselves.
This reality makes Afore Capital’s latest product launch appear all the more benevolent. The venture firm, which just closed a $150 million fund in May 2022, is launching what it describes as a common application for pre-seed startup founders. Similar to the well-known undergraduate college admission application, a startup Common App would allow founders to seamlessly pitch multiple investors using the same basic form and pitch deck — all at once.
Here’s how it works: Afore Capital has an accelerator-like program, Afore Alpha, that offers a standard pre-seed deal to founders. The application includes questions about the founding team, pitch deck, recent wins, inspiration and, interestingly, whether the startup has applied to or interviewed at Y Combinator for the firm’s internal benchmarking process.
Those accepted land a $1 million lead investment via a $10 million post-money SAFE, a deal that Afore notes is five times more capital and five times the valuation that accelerators like YC and Techstars offer.
Now, the same founding teams that apply to Afore’s program will automatically have their application blasted to 30-some investors in the venture firm’s network. The cohort, which Afore dubs as pre-seed experts, includes Trail Run Capital’s Allison Barr Allen, The New Normal Fund’s Allison Pickens, Night Ventures’ Em Herrera and Cambrian Ventures’ Rex Salisbury.
The initiative, which is launching publicly this week, is an attempt at standardizing startup pitches to save time for founders and offer fresh deal flow for investors. While Afore wants to keep its network of investors specialized, its ambition is to move a behavior that often happens among investors and their small networks into a venture-wide practice.
But the tool does raise a fair number of questions: Are venture capitalists ready to collaborate with each other in such a big way? Is there a negative signal in blasting out an application to dozens? And what happens if you accidentally pitch an investor who just happens to be leading your competitor’s latest round?
A classic conundrum
Afore general partner Anamitra Banerji thinks that investors are more open to sharing deal flow in the earlier stages because there is less data to go off of. He likened the startup Common App to a version of what techies may see at an accelerator demo day: “All the investors getting presented with a trailer about the company and they all have to react, but that model hasn’t been innovated on.
“We’re just at the top of the funnel as companies get started, and there should be a [tool similar to Common App] that helps you get the first person in the door.”
The investor thinks that a Common App-inspired move, tailored for startup funding, will solve for a classic conundrum: What happens when a startup isn’t a fit for your firm but is still a smart company that may make sense for your climate-focused emerging fund manager friend? Sometimes, those smart companies get lost in the cracks — think about the number of companies that don’t get into Y Combinator by a razor-thin margin— instead of being passed on to another firm.
Originally, Afore was thinking about sending companies that didn’t make it to its accelerator program to its network of outside investors. But Banerji said that Afore sends startup applications to the network as soon as they submit, meaning that Afore sees them at the same time as other pre-seed investors.
“We’re taking the risk of exposing it to everyone else in the group and maybe losing the deal and allocation and things like that … but that kind of demonstrates to them, to us, that we’re not only sending them things we have passed on,” Banerji said.
Open, but not too open
NextView Ventures is launching its fourth accelerator program this week, offering $400,000 in funding to around half a dozen founders. The firm’s co-founder and partner, Rob Go, said that the idea of a funding-focused version of Common App isn’t terribly new, but he thinks it’s “pretty creative and innovative.”
“If I were a founder looking to make more angel investments, I’d be open to participating,” he said. “They would also need to be careful not to inadvertently have the information fall into the wrong hands,” whether it’s a competitor or an investor backing a competitor.
Christine Tao, the founder of Sounding Board, noted that although her startup is no longer considered early stage — thanks to a Series B it closed in 2021 — the Common App for funding idea “seems promising.” Tao had trouble raising funding as a female founder in the early stages of building her coaching startup.
“The devil will be in the details,” Tao said. “It could help both parties more quickly narrow down a list of likely matches. Or, you’ve unnecessarily blasted your info out to investors who never would have been interested in the first place.”
Banerji expected this critique, adding that Afore is working on fine-tuning their version of Common App so that founders can eventually decide which investors they want to pitch to and which they may want to avoid. Right now, the founder’s only option is to take a look at the list of experts.
While the investor thinks that standardizing the pitch process gives founders an edge in information dissemination, Tao underscored that information asymmetry can benefit investors.
“Investors are all about ‘pattern recognition,’ and without a personal connection, founders that don’t fit into stereotypical founder profiles are unlikely, [in my honest opinion], to benefit from a [funding-focused version of] Common App,” Tao said.
Ultimately, no investor is pressured or mandated to invest in a startup that they discover through Afore’s application. At its core, it’s a discovery tool that is free for both parties to use. While that dramatically decreases the stakes, Tao’s perspective does highlight the tensions that continue to impact how investors, well, invest.
A Common App for funding may be a smart way to stay on top of the market, but it can’t remain the only way. Depending on whom you ask, that’s quite OK.
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