Foundation Capital has come a long way since it was forced to scale down its fund size from $750 million in 2008 to $282 million (its sixth main fund) in 2013.
On Tuesday, the 30-year-old firm announced that it raised a $600 million eleventh flagship fund, which is 20% larger than the predecessor $500 million fund it closed about three years ago.
Foundation credits its revival with sticking to its knitting: seed-stage investing.
“Most firms that have been around for 30 years have typically gone multi-stage, multi-geography, multi-strategy. We instead have stayed very focused on the early stage,” general partner Steve Vassallo told TechCrunch.
Foundation is the first institutional investor in over 70% of its portfolio companies.
“We look for what I call ‘$0 billion’ markets in enterprise, AI, fintech and crypto,” Vassallo said. “These are markets that don’t even exist until founders will them into being.”
He explained that when Cerebras launched in 2016, from Foundation Capital’s office, the AI chip market was virtually nonexistent. “At that time, AI workloads were minuscule,” Vassallo explained, adding that Nvidia’s GPUs were used mainly by gamers and graphic designers.
Since then, Cerebras has grown into a company valued at $4.25 billion. The company filed a public S-1 last fall but postponed its IPO primarily due to a review by the Committee on Foreign Investment in the United States (CFIUS).
Foundation Capital was also the first institutional investor in the blockchain platform Solana.
Vassallo compared how they look for founders to the pre-criminals in the movie Minority Report. “We sometimes joke about identifying pre-founders before they’ve even left their last job,” he said.
Foundation claims that by creating new markets, the firm’s winning investments end up “owning their categories,” leading to exponentially better outcomes.
Vassallo attributed the firm’s ability to raise a larger fund than its predecessor in this market to the firm’s history of high cash distributions.
“We gave roughly $1.4 billion back to our LPs over the last three years,” Vassallo said, adding that that amount is over three times what the firm called (or requested) from its investors during the period.
Recent exits that helped to drive the firm’s cash returns include the sale of fraud detection company EvolutionIQ to CCC for $730 million and the acquisition of cybersecurity startup Venafi by CyberArk for $1.5 billion.
Although Foundation is firmly sticking to its early-stage strategy, it claims it needs a larger fund because the size of seed and Series A deals has grown, and the firm wants to continue to own 15% to 20% of each company when it first invests.
But one thing about Foundation is different now. Charles Moldow, an investor who spent nearly 20 years at the firm and backed companies like LendingClub, Rappi, and Kiavi, retired last year, leaving Foundation with four general partners.
