Venture capital investment hit a record last year, largely thanks to a new lineage of corporate investors. Exceeding even the high-water mark of the dot-com era, venture investors sank $131 billion into 8,949 deals.
The most surprising part of Pitchbook and the National Venture Capital Association’s analysis, though, isn’t the headline number — it’s the size and breadth of corporate venture deals. Last year, private equity groups invested $38.5 billion in almost 800 deals. Over the same time frame, corporations spent nearly twice that, $66.8 billion, across 1,443 investments. The remainder came from individual, nonprofit, and public sources.
Dig deeper into those corporate sources, and you’ll discover an even bigger surprise: Many aren’t corporations at all. They’re startups supporting other startups.
Small Firms Fill Gaps
Why are small companies getting into the venture capital game? Because unlike their larger brothers, they live in the same world as the companies they invest in. Unlike many of their private equity peers, they step up to do the dirty work. In fact, small agencies tend to have clients, partners, and resources that surpass similarly sized VC firms.
Because many founders come from tech and sales backgrounds, they lack expertise in areas like HR, operations, and marketing. VCs at large corporations certainly have connections, but corporate marketers and recruiters face far different challenges than their startup kin. Standalone VCs understand what startups go through. At least at the partner level, however, few are willing to assume the role of marketer or operations manager.
Filling those gaps are firms like Hawke Ventures, a fund established by Los Angeles-based marketing firm Hawke Media. Hawke Media services more than 400 clients each month and maintains proprietary data on thousands more. Although many of Hawke Ventures’ portfolio companies have a product, they need marketing know-how to actually get it on shelves. But especially in Hawke Ventures’ sweet spot of $100,000 to $250,000 investments, few investees can afford to hire a CMO.
Take Brandable. Although the brand-building startup has a CEO and a CFO, it doesn’t have a C-level marketer on its team. To get on the radar of now-partners Walmart, Amazon, and Walgreens, Brandable needed growth marketing expertise from co-founder Erik Huberman. Huberman offers outsourced CMO services through Hawke Media, as well as data-driven expertise on the direct-to-consumer and retail spaces.
That hands-on approach isn’t common in the private equity world. But as Hawke Ventures knows, it’s worked for perhaps the most well-known VC firm, Andreessen Horowitz.
Spotting, Then Building
How has Andreessen Horowitz been so successful at raising unicorns? Because it recognizes that after spotting gems like Airbnb, Slack, and Pinterest, the next step is building them.
Before Marc Andreessen and Ben Horowitz took on Silicon Valley in 2009, their approach was unconventional, if not outright heretical. As tech co-founders, they weren’t afraid to step in when they saw a process sputtering or a project going south.
Andreessen, who’d previously co-founded companies like Netscape, joined Horowitz in late 1998 as co-founder of Loudcloud. Although Loudcloud successfully sold infrastructure and application hosting tools to enterprises like Ford Motor Company, it gave Andreessen and Horowitz a crash course in the many bases startups have to cover.
Together, those experiences put Andreessen Horowitz at the peak of the VC value pyramid: capability. Between them, Andreessen and Horowitz had banked skills spanning product development, finance, and operations. And if they didn’t have an expert internally, Andreessen and Horowitz never hesitated to bring in external help.
That outside help once took the form of agencies like Hawke Media. Now, it and other small agencies are seeing what they have: the expertise startups need to scale.
Diverse Skills, Same Size
Although Hawke Media has worked with established brands like K-Swiss, growth marketing is where the agency shines. Growth marketing includes everything from social media to UX design to website development.
Realizing they, too, could deliver the “capability” component of the VC pyramid, Hawke Media’s co-founders partnered with Paige Craig. A founder and general partner at Arena Ventures, Craig has invested in dozens of startups — including Lyft, AngelList, and Postmates — since switching from defense contracting to startup investing.
To complete the Hawke Ventures team, they brought in Hawke Media’s entrepreneur-in-residence Drew Leahy as a managing partner. With their diverse backgrounds, they understand what founders face.
Microfund VCs like Hawke Ventures don’t have the deep pockets or wide networks that larger players do. They do, however, have entrepreneurial experience. And as Andreessen Horowitz did a decade ago, they’ve come to understand just what an investment advantage that is.