SAN FRANCISCO – Greenhouse for Startups launched fund raising in early June for its $30 million-targeted GFS Fund I, said Jad Duwaik, managing partner. He said GFS is aiming for a first close on $20 million by October 1.
Founded in October 1999, GFS is a matching service that connects start ups seeking their first round of institutional venture financing with venture capitalists looking for deals. Unlike other companies providing a similar service, GFS does not take a broker’s fee, Duwaik said. “Entrepreneurs and VCs both told me they would rather work with someone who didn’t charge a commission,” he said. So instead of taking a commission, GFS takes co-investment rights on any deals it helps to arrange. GFS will not invest in every round of financing it arranges, he added. “It does not create any real additional cost to us to intermediate a deal and not invest,” he explained, since GFS matches companies looking for funding with potential investors through events it hosts called the O-Ring.
Entrepreneurs looking for funding submit executive summaries to GFS through the company’s Web site. GFS then selects companies with the most promising summaries and invites them to attend an O-Ring event to meet potential investors. Thus far, GFS has hosted two O-Ring events and plans two additional meetings in July and late August.
When the fund closes, it will take 2% to 5% of financing rounds in which GFS wishes to participate. Duwaik said typical rounds of financing arranged by GFS should range from $3 million to $10 million, so GFS Fund I’s average deal size as a participant in those rounds should range from $60,000 to $500,000. He thinks the fund will do approximately 40 to 60 deals. Until the fund closes, GFS will take warrants for up to 2% of the rounds it helps to arrange. To date, GFS has not yet arranged any deals.
Duwaik said he anticipates the vehicle backing primarily wireless and telecom deals, because these are the sort of companies many of the VCs he is in contact with want to fund. Duwaik declined to disclose the fund’s management fee or carried interest structure. He described them as being at the industry standard levels. He also declined to identify the vehicle’s limited partners.
Duwaik, who already had launched two other companies, founded GFS after he moved to the San Francisco Bay Area in mid-1999. The original goal of GFS was to be a networking group for entrepreneurs, investors and employers. The idea for the matching service came about after some deals were arranged informally at GFS events, he explained.