How to get a check from Amazon’s new fund of funds

Amazon Catalytic Capital, the e-commerce giant’s new $150m fund of funds, has already backed four funds. Here’s what it’s looking for.

Amazon’s new fund of funds is being “very selective” with the VC funds it supports, but it has $150 million to spend for those that fit its investment goals, the head of the fund told Venture Capital Journal.

To start with, it is important to understand that the fund focuses on pre-seed and seed-stage venture funds targeting underrepresented founders, said Zain Gulamali, who oversees Amazon Catalytic Capital.

Zain Gulamali, Amazon Catalytic Capital

“We’re being very selective, and we’re pleased with the demand. We’ve seen hundreds of funds that have expressed an interest in working with us,” Gulamali said. “It also speaks to the fact that there’s a big need out there. We wish we could support and work with all of them, but it’s a journey, so even if we only invest in that 10 to 12 range we’re constantly trying to figure out how Amazon can be supportive of the broader network of funds that are out there.”

The fund has already invested in four firms:

  • Collide Capital, a Black-owned pre-seed and seed-stage fund founded in 2021 and based in Cambridge, Massachusetts. Amazon invested in its $66 million Fund I, which has a portfolio of more than 80 percent Black, Latino and/or female founders.
  • Elevate Future Fund, a fund overseen by New York City-based Energy Impact Partners that invests in underrepresented founders tackling sustainability and clean energy issues.
  • Share Ventures, a Los Angeles-based venture fund and accelerator founded in 2020. Amazon invested in its $50 million debut fund, which creates and invests in companies focused on human capital within a variety of industries.
  • Techstars Rising Stars Fund, a $10 million pre-seed venture fund investing in underrepresented founders of color in the US. The fund is managed by Boulder, Colorado-based Techstars, a global accelerator founded in 2006.

According to a report from social impact firm Kapor Capital, just 1.2 percent of the $147 billion invested in US start-ups in 2021 went to Black founders, and funding for Latino-founded, early-stage startups dropped from 1.5 percent in 2020 to 1.2 percent in 2021.

“Right now, investors are being cautious, and the first group of founders to see that kind of uncertainty is usually underrepresented founders,” Gulamali told VCJ. “This is our first fund-of-funds strategy where we’re investing in funds and accelerators and incubators, whereas our other investment efforts are directly into companies. We thought that this unique approach, plus the return focus and that impact focus, could create something that, in the long run, could change the industry.”

Gulamali sees Amazon Catalytic Capital as a complement to the company’s already established venture capital efforts. “The funds that we’ve invested in to date have been focused in pre-seed and seed stage,” he said. “Many of the direct investing efforts that we have at Amazon generally start at Series A, so this is great because it allows us to dovetail with where those funds are focusing and potentially do follow-on investments in their portfolio companies from our other initiatives.”

Beyond track records

He also noted that because emerging managers are by definition new, many don’t have the historical track record that investors look for when committing to a fund. Amazon Catalytic Capital also looks at the operating experience of the fund’s leaders, their networks and their commitment to supporting underrepresented founders when evaluating investments.

“Some of them have been mentors to other companies for a long time, so as soon as they were able to raise their own funds, they got access to a lot of dealflow because they’ve been adding value in the past,” Gulamali said. “You can almost think of it as an arbitrage opportunity where, because the fund founders effectively had dealflow to them to date, now that they have a fund they have great investment opportunities.”

Amazon Catalytic Capital will provide the portfolio companies of the funds it invests in with a variety of value-add services as well, including mentorship opportunities with Amazon executives, many of whom previously founded companies operating in the same verticals. Further down the line, Amazon will work with the companies to identify possible opportunities for partnerships and product collaboration projects to accelerate growth.

The new fund of funds is just the latest in a string of impact-focused investment initiatives from Amazon. In April 2022, Amazon Web Services launched its direct investing AWS Impact Accelerator to commit $30 million over three years to early-stage startups led by Black, women, Latino and LGBTQIA+ founders. The initiative provides $125,000 and up to $100,000 in AWS credits for founders, along with training, mentoring and technical guidance.

In June 2020, Amazon launched its Climate Pledge Fund with $2 billion in capital to invest directly in climate tech companies operating across transportation and logistics, energy generation, storage and utilization, manufacturing and materials, food and agriculture and other industries. Following the company’s investment into Elevate Future Fund, the two funds are expected to work closely on direct investments in emerging climate tech companies.

In 2015, Amazon launched the Alexa Fund to invest in companies furthering the development of artificial intelligence, robotics and digital health across the consumer and enterprise sectors. The fund, co-led by Gulamali, invests out of its up to $200 million pool.