Menlo Park, Calif.-based Bullpen Capital is braving a freezing cold fundraising market to pursue a distinctive venture strategy.
The firm, co-founded by Paul Martino, Duncan Davidson and Richard Melmon, entered the market last year seeking $50 million for its debut fund. To date, Bullpen Capital has secured $10 million in commitments from family offices and high net worth individuals.
The firm aims to hit up more traditional limited partners for the remaining $40 million in 2011. Despite 2010’s ugly year for allocations, Martino says that Bullpen Capital can pull it off.
“The demeanor of LPs we talked to in the spring of last year was downright awful,” he says. “They said, ‘Why are you doing this? Are you crazy?’ and that’s exactly how I know it was the right time to do it.”
But that attitude has changed with the seasons. In the fourth quarter, many of those same investors returned, expressing serious interest in Bullpen Capital, he says.
The firm aims to invest in “tweener” companies—seed stage startups not yet ready to raise a larger, traditional round of funding. This in-between phase is an investing gray area, and as the seed stage bubble grows, it’s giving venture capitalists gray hairs.
Many “super angels” are forbidden by their fund agreements to re-invest in their seed companies without third party validation. Meanwhile, many startups are uncomfortable raising their first round of traditional capital so early in the game. Throw in disagreements on investment size, and it’s a recipe for what Union Square Ventures Partner Fred Wilson recently called “the mess.”
Our whole goal in life is to be relief pitching when the super angels run out of gas. We have no doubt this is a good spot to be in the venture ecosystem right now.
Paul MartinoCo-founderBullpen Capital
The founders of Bullpen Capital noticed the phenomenon last year and began to research the opportunity through their networks of super angel investors. They formed a strategy and named their firm after the stomping ground of baseball relief pitchers.
“Our whole goal in life is to be relief pitching when the super angels run out of gas,” Martino says. “We have no doubt this is a good spot to be in the venture ecosystem right now.”
Bullpen Capital plans to source many of its deals from that network of super angels. Of the 125 or so annual deals struck by what Martino calls the “Elite 8” funds, about half are investment candidates for Bullpen Capital. Of those, Martino estimates Bullpen Capital will win about 12 deals a year.
Of course, there’s the argument that follow-on seed investors pay a premium while taking on a disproportionate amount of risk. Martino says that Bullpen Capital studied similar models in later stage businesses, such as Palo Alto, Calif.-based DAG Ventures. The difference with Bullpen Capital was that DAG and others often gain access to deals by paying up. Bullpen Capital hasn’t seen much competition for its deals because about half of its investments are into what Martino called “pivot” or “B-minus” companies that need improvements.
Bullpen Capital has already begun to put its $10 million pool of capital to work. In January, the firm, alongside Index Ventures and Kenny Van Zant, backed customer service software company Assistly in a $3 million round. They joined existing investors True Ventures and Social Leverage, who previously invested $1.7 million in the San Francisco-based company.
Bullpen Capital specializes in Internet technology investments, mirroring its partners’ backgrounds. Martino founded Aggregate Knowledge, a social networking company, as well as Tribe Network, which sold to Cisco Systems in 2007. Davidson worked as a managing director at VantagePoint Venture Partners after founding Covad Communications, SkyPilot Networks and Xumii Inc. And Melmon is a co-founder of NetService Ventures, a seed stage investment firm.