One reason that early-stage VC firm 645 Ventures decided to raise its first growth fund was to provide a wider berth to continue increasing its ownership in its best-performing portfolio companies as they scale up.
“Last year, our portfolio [companies] raised $1.1 billion in follow-on capital and those fundraises really exhausted our reserves,” Aaron Holiday, one of the firm’s co-founders and managing partners, told Venture Capital Journal. “When that was happening, we started to think through how might we continue to support our portfolio companies in the long term, especially those growing rapidly.”
The New York-based firm’s new Select I Fund, with commitments of $153 million, is a dedicated vehicle designed for that purpose, and it will eliminate the need for co-investments by LPs or special purpose vehicles whenever one of its start-ups initiates a large follow-on round, Holiday added.
The Select I Fund is a stapled fund, meaning it was raised in tandem with the firm’s $194.5 million Fund IV. Stapled funds require that LPs commit to both funds, and the new funds bring 645 Ventures’ total AUM to $550 million.
More than 90 percent of the capital raised by 645 Ventures comes from institutional investors, including endowments, funds of funds and foundations, with the remainder coming from smaller investors such as family offices. Three-quarters of the capital raised for the two new funds came from LPs that have invested in 645 Ventures’ prior funds, with just one former LP declining to return, said co-founder and managing partner Nnamdi Okike.
“The desire on [the LPs’] part is to be able to get access to these opportunities in a more structured way,” said Okike. “So rather than them doing one-offs alongside us, they get access to all the deals we’re doing through Select I. And it’s a portfolio, so that really appeals to LPs who are interested in that growth-stage exposure.”
Where there are any follow-on opportunities that 645 can’t take the full pro rata for or chooses not to, it will make them available to LPs for co-investments, he added.
After starting discussions with investors in late 2021, 645 began fundraising in May, with “the majority of our existing LPs jumping in right away based on the performance of our funds and the institution we’re building,” said Holiday. The first close was at the end of June, and the remaining commitments were secured over the next four months.
The growth fund will write checks of up to $15 million to 12 companies raising Series B and later rounds, while Fund IV will write checks of $1 million to $10 million in seed and Series A rounds for an expected 30 new start-ups.
With a focus on enterprise SaaS, infrastructure software, consumer categories such as online marketplaces, and crypto/web3, 645 has invested at early stages in companies such as Goldbelly, Iterable, Panther Labs, and Overtime, as well as FiscalNote, which listed on the New York Stock Exchange in August.
In addition to investing in start-ups, part of the new capital raised will go toward expanding 645’s “success team,” which is at the core of its value-add proposition to founders, for which Okike and Holiday aim to be known. Currently, the success team includes two staff members dedicated to talent acquisition and retention, one focused on marketing and PR for start-ups and one concentrating on customer acquisition and early adoption.
Nnamdi said the eight years he spent at Insight Partners before launching 645 in 2014 taught him the importance of providing targeted resources to help companies scale.
Help for the journey
When Nnamdi and Holiday founded 645, they thought about “what do companies really care about when they’re going from the very early stage to the growth stage,” he said. Those areas include help with recruiting, go-to-market strategies and syndicate formation to facilitate funding. Their founders like that focused approach and their LPs support it, he added.
The firm’s Connected Network includes leaders from major financial institutions like Morgan Stanley and Goldman Sachs, tech giants like Microsoft and hospitals such as New York Presbyterian, to whom founders can appeal for help in finding board members, customer introductions and operational assistance in specific areas.
Although 645’s value-add offerings to its start-ups have to date focused on company growth, Okike and Holiday said they’ve lately been thinking more about the personal well-being, emotional and mental health of their founders. That could include resources for coaching for founders and helping them think about the company culture they want to build, said Holiday.
Holiday is also a board member and on the faculty of Cornell Tech, where he helped create the educational pedagogy around how start-ups are formed on campus. The studio that he and others established “represents over a third of the students’ curriculum, and in the studio students are building real things, oftentimes building products that address the needs of customers that they may have discovered off campus,” he said.
Holiday also helped launch the Startup Awards, which provide graduates with money from Cornell Tech to be able to continue building products they began to develop and iterate as students.
One of 645’s portfolio companies, Nanit, came out of Cornell Tech’s runway program, which commercializes research by doctoral students. The founder used software to create computer vision algorithms that became the basis for a product that enables parents to monitor their children’s sleep patterns. Holiday’s sons were early users, and 645 invested in Nanit at the seed stage.