Small venture capital firms require deep trust, mutual support and long-term commitment between partners – relationships that are in many ways like family.
Collin Anderson (former CFO of Palantir and former VP of research at Peter Thiel's Clarium Capital) and John Fogelson (son of IVP co-founder Norm Fogelson) didn't need to develop a family relationship before founding a venture: There was already a family connection between the two investors: Anderson is married to Fogelson's sister.
When the two brothers-in-law first met in 2007, they shared a passion for venture capital and eventually ended up investing together with their own personal capital. Their backgrounds gave them deep and wide networks in Silicon Valley; Anderson's track record in scaling Palantir's finance team from one to 60 people was particularly helpful in helping the pair become angel investors in several well-known companies. Entrepreneurs like Ryan Petersen, co-founder of logistics startup Flexport, sought out Anderson's expertise in building out their finance departments.
By 2020, Anderson and Fogelson decided to take their investment relationship to the next level by raising their first fund with outside capital. They pitched their limited partners that they could leverage their Silicon Valley connections, and Palantir's network in particular, to back fast-growing companies that were committed to building strong financial teams.
The fund, which the firm sees as its second investment vehicle, closed with $91.5 million, well above its initial target of $60 million.
Even though Anderson and Fogelson are raising capital from institutional LPs and looking to back startups with $20-100 million in revenue, they wanted to maintain the spirit of their friends and family fundraising approach to investing, so they named the firm “Friends & Family Capital” to reflect that spirit, their family ties, and Fogelson's membership in a prominent Silicon Valley venture capital family.
Their selling point for founders is that they are experts in helping startups structure all things financial.
“The opportunity we saw was to become a trusted partner for founders and CFOs as they scaled their finance functions,” Anderson says. They have helped portfolio companies with issues like building financial forecasting models, crafting numbers-driven fundraising proposals, and arranging interviews with CFOs when companies are ready to make key hires.
Apparently, that kind of advice is in high demand: Friends & Family's most recent fund invested in companies like Airtable, Anduril, Gusto, Peregrine, and Verkada.
The firm announced a $118 million third fund on Wednesday, bringing its total funding, including special purpose vehicles, to more than $350 million.
Friends and Family's third fund, like its previous funds, will be used to invest in “quintessential B2B enterprise software” companies and hardware businesses with a recurring revenue element.
“There's a new wave of hardware companies coming in,” Fogelson said. “These companies are providing software that just happens to be in the form of hardware.”
Gecko Robotics, the first investment from Friends & Family's third fund, is a great example of this approach. The company is developing AI-powered robots that inspect physical infrastructure such as power plants, bridges, dams, and warships.
The firm's latest fund will fund eight to 12 companies with at least $20 million in revenue and write checks for 5 to 10 percent of the fund. In addition, Friends & Family will take smaller stakes in as many as 40 startups. This strategy helps the firm build relationships with promising startups and give it the option to invest further at a later date.
“Many venture funds [write] First a big check, then [invest] “We're only writing small checks,” Anderson said, “but we plan to increase our position as the company approaches $20 million or more in revenue.”