In a founder's market, it's more important than ever for early-stage venture firms to set themselves apart if they want to get in on the ground floor of the next big tech startup. For early-stage enterprise investor Ridge Ventures, that means a new team and a whole new investment strategy.
On Thursday, the VC firm announced that Brendan Baker was joining as a partner in a "weird" dual role that involves traditional check-writing and board seats in addition to building a sustainable firm structure and investing model that will outlast the young firm's growing roster of partners. Baker had been in an advisory role at the firm for the last year.
"It's just ridiculous that most venture firms fail because they don't plan for generational changes in leadership and partnership," Baker told Business Insider. "I want to build Ridge in a way that works for many generations after we are gone."
Baker's proposal is to create a data-centric investing model that removes individual biases from Ridge's investment thesis. He created a similar model as director at Reid Hoffman's venture firm Greylock before joining Ridge, another early-stage firm. In the earliest stages, Baker said that most investors have to rely on gut instinct about a founder or a business idea because there simply isn't enough data to make an informed decision.
"It's hard to be a VC firm and not be transparent," Baker said of the investment process. "It's hard to compete in Silicon Valley as an investor and not be responsive and move faster, so we need to learn how to make good decisions quickly. We can and should be doing what we advise our companies to do, which is use metrics to track how we are moving the industry forward at large."
A competitive edge for early investing
Since Baker's first days in Silicon Valley as one of the first employees at AngelList, another early-stage firm, competition to land the next big startup has only intensified for the earliest investors. Ridge Ventures managing director Alex Rosen said that any venture fund under $150 million is now considered a micro-fund and is outmatched by some of the bigger funds continuing to push into earlier investment stages.
"A great founder will always have lots of options to raise capital," Rosen told Business Insider. "It is significantly more crowded in the super early Seed rounds or the Series A rounds that really look more like Series B rounds now."
That's where Baker's data model and firm structure come in. If he is able to better identify potential winners in say, the edge computing industry, using only minimal data, Ridge Ventures will be better positioned to make a reasonable offer with a realistic valuation. It's part of Ridge's strategy to remain ahead regardless of market conditions, Rosen said.
"It's really hard to say this without sounding like a grouchy old guy," Rosen said. "We have younger partners and older partners, and some investors that have in three full economic cycles. We've seen the ups and downs, and the most important part of the investment business is not trying to time the markets. We just need to identify the best founders and the best opportunities."