While many venture capitalists try to back companies with large addressable markets, Spark Capital has had success taking bets on startups with no existing or easily definable markets.
In 2013, the Boston-based firm led a $16 million Series A round of Oculus, a maker of virtual reality headset. Back then, there was no virtual reality market to speak of after the idea fell out of favor in the 1990s. Oculus revived people’s interest and in 2014, Facebook bought the company for $2.3 billion.
“We like crazy ideas and new markets,” Kevin Thau, general partner told VCJ. “Many invest in incremental evolutions of different products, but then there is a new theme nobody was thinking about.”
Thau’s latest investment is Feather, an online furniture subscription platform aimed at millennials.
In many ways, the $12.5 million Series A round deal is representative of Spark’s philosophy of investing in unproven ideas.
“Although nobody knows what the market for furniture as a subscription service market looks like, we thought Feather was conceptually very interesting,” Thau said.
In a time when people are easily renting clothing and other people’s apartments online, furniture subscription service has a potential of appealing to consumers, Thau explained.
Jay Reno, founder and CEO of New York City-based Feather, told VCJ that the idea for his company was born after he switched apartments six times in eight years and realized that his furniture didn’t fit the style or layout of his next space.
Feather doesn’t compete with traditional furniture rental companies, such as CORT, Reno said. The company’s competitors are furniture retailers, specifically those selling fast furniture like IKEA, he explained.
The startup was seeded by Kleiner Perkins and Bain Capital Ventures. The Series A round received more interest than expected, Reno said.
Choosing Spark to lead the latest round was not a difficult decision for Feather. “When we met Thau and the Spark team, we felt the integrity, they understood our business and we knew they would not nickel and dime us,” Reno said.
Spark is known not only for its ability to recognize winning products in untested territories, but also for its penchant for picking startups with strong brand potential. “We were blown away by Feather’s design aesthetic and beautifully curated Instagram,” Thau said.
Thau, who joined Spark in 2015 after years as a senior executive in Twitter, where Spark was an early investor, said that although neither the firm nor its individual partners focus on a specific area or industry, he tends to gravitate towards consumer-focused startups and “gets excited about product and brand.”
Based in the firm’s San Francisco office, Thau has led Spark’s investments into Medium, a publishing platform run by Twitter’s founder Ev Williams; Mirror, a startup that streams boutique fitness classes on an LCD display that is a full-length mirror when turned off; and LOLA, a subscription service for feminine care products. These companies created strong brands early on.
When Thau proposed Feather to the other five partners, the team did what they always do when deciding weather to invest in a company. They discussed the opportunity in what Thau called a family-style debate.
“We don’t vote on investments. We discuss and come to a consensus,” Thau said. If one of the partners feels strongly against an investment, then the firm passes on the opportunity, he explained.
The firm’s early-stage strategy is currently investing out of its $400 million fifth fund, which closed in 2016, and according to a regulatory document is raising a sixth $400 million fund.
Spark’s earlier funds are some of the best performing in the industry thanks to the firm’s big wins from investments in Tumblr, Twitter, Oculus, Cruise, and Wayfair. Spark Capital II from 2008 has an IRR of 51.7 percent, according to an analysis of a performance report from the Los Angeles City Employees’ Retirement System, a backer of Spark funds.
The firm’s latest fund has the challenge of having to live up to its own impressive track record. Only time will tell if the firm’s backing of companies like Feather will continue to make Spark one of the most respected venture firms.