Since its foundation 645 Projects a decade ago, Aaron Holidaysand Creator believed that software tools that enable data-driven decision-making should play a larger role in the world of seed investing, where networks play a dominant role.
“The idea that you could actually introduce automation and greater diligence at the seed stage was not common,” Holiday said.
The co-founders had previous experience that led them to this thesis. Holiday, a software engineer in stock trading at Goldman Sachsbrought these skills to the enterprise. Okike spent nine years in Insight Partners and saw the value in supporting our portfolio corporations as they grow their business.
“One of my teachings [at Insight] is that a really good platform team could be very beneficial not only in terms of winning deals, but also in helping corporations after they make the investment,” Okike said, referring to the company’s in-house developers.
645 Ventures’ first fund was an ambitious $8 million seed round announced in 2014. In late 2022, the firm raised its largest funding ever, $350 million, across two funds: its fourth flagship fund of $195 million and a selective fund of $153 million.
A seed and early-stage enterprise is a web-based business. But what sets 645 Ventures apart is that it has also built its own seed investment software.
On the outbound communication process and direct contact with corporations, Okike said:
“We also created an outbound deal-sourcing model. And that’s something that’s pretty unique at our stage,” Okike said. “There are ways to show the founder how we can help. And it’s also a way to find out how good these founders are, because if they go and pitch to one of these companies and they become a customer, you get an idea of the quality of the product and also their sales ability. So it’s informal due diligence.”
The research-focused investment team analyzes hundreds of corporations each month, looking at people who are doing well, often in sectors missed by enterprise capitalists.
Getting to A
“We implemented growth capital and due diligence practices early on, which lowered our loss rate,” Holiday said.
“We have models of what makes a great founding team, or what makes a great market, or what product features to look for in exceptional seed-stage companies, and we try to quantify that as much as possible,” Okike said.
The company says greater than 50% of its seed-stage portfolio investments go to Series A.
“If a larger percentage of your businesses don’t go bankrupt before your Series A funding round, you’ll have a better chance of seeing a return on your invested capital in the fund in the long run,” Okike said.
As the market has returned to capital-efficient growth in recent years, several portfolio corporations with regular revenue growth have been acquired, Holiday said. These include a real estate management platform Arieo acquired by Zillowdirect to consumer mattress seller Resident By Ashley HomeStoreidentity threat company Oort By Ciscoand real estate intelligence platform A greater view acquired by Close-up map.
Portfolio company Fiscal notegovernment data and analytics company, went public in August 2022 via a SPAC offering. (It is valued well below its $1.3 billion market cap.)
645 Ventures plans to invest in 30 corporations from its fourth fund. Each fund is typically invested for a three- to four-year period, with a longer-term horizon. For the chosen fund, 80% might be invested in the best-performing corporations.
In the past yr, 645 Ventures has expanded its organization. The firm has 21 team members in its New York and San Francisco offices, including a combined research and investment team, a success team, an engineering team, and investor relations.
(*10*) Okike said.