While we often focus on the mega rounds that drive big startup valuations, the reality is that every startup has to start somewhere and find that first check that few to no investors are willing to actually write.
Notation has made that first hurdle its key differentiator.
Across its first two funds, an $8 million vehicle raised in 2015 and a $28 million second fund with more institutional capital in 2017, the New York City-based firm has been intensely focused on the earliest-stage startups: founders thinking about spinning out of companies, engineers with ideas scrawled on whiteboards, product developers with PowerPoints or maybe a workable MVP.
For the firm’s two GPs, Nick Chirls and Alex Lines, that stage of a startup’s life was both the most rewarding stage to invest in and where they had the most experience. Formerly, the two had worked at Betaworks, the fund / workspace / incubator / community that has helped bring to life companies like Giphy.
Now, with the pandemic in full swing, the duo are tripling down on their thesis.
The firm announced today the launch of its third fund, a $42 million vehicle that was “closed in the depths of the coronavirus” according to Chirls. In addition, he highlighted the firm’s first external hire, of Katherine Wu as a principal, who officially joined roughly a year ago.
In addition to investing, she will be launching with Lines and Chirls a new program called Notation Moonlight this September, which is designed as a community of up-and-coming tech leaders who are considering building a company someday.
Chirls said that while Silicon Valley has a lot of infrastructure in place to help founders go down the path of starting a company, such resources were less prevalent in New York City and other smaller startup ecosystems. With Moonlight, “we want to begin to build that same set of resources and community for folks that are going to start a company but haven't yet,” he said.
Wu noted that more direct outreach through initiatives like Moonlight could help improve the pipeline of founders, particularly from less traditional backgrounds or from under-represented groups. “If we're being totally honest, in New York City, entrepreneurship and startups, they're not as deeply entrenched into everyone's minds as [they are] in San Francisco and Silicon Valley,” she said. The goal is to “just give them the tools … essentially bring our network to them.”
The initial cohort is targeted at somewhere between 15 and 20 potential founders. Moonlight will not take equity, doesn’t require its participants to give up their day jobs, and essentially will act as a decentralized community for participants to talk to one another and think through the steps of fleshing out products, investigate interesting markets and build friendships that can help make the startup experience a little less lonely.
As for Notation’s new fund, there are some small tweaks. The bulk of the fund will remain devoted to the same geo — New York City — and the same general markets, which include enterprise software and infrastructure, blockchain and other technical projects. Wu will add a bit more of a consumer flair to the team’s investment interests, and Notation is also intending to invest a small chunk of its fund in smaller startup ecosystems like Boston and Atlanta, where the firm recently made its first investment.
They are looking at these markets “For all the same reasons we loved New York five years ago — there's great talent, there's not enough capital, there's not enough first-check firms,” Chirls explained. That’s a sentiment that every founder can empathize with, and Notation now has even more capital to solve it.