Seed King

There’s no arguing that Seed stage investing is hot right now. After all, it’s the massive increase in Seed investments, not a decrease in activity in later stages, that has led to the Series A crunch. Not only are there more angel investors than at any time in history, but later stage firms are now running dedicated seed programs, whether they be formal or undercover.

The latest firm to move in that direction, although with a bit of a unique twist, is Maveron, the consumer-only fund founded by Starbucks CEO Howard Schultz and former investment banker Dan Levitan. Maveron has announced its formal plans to complete a minimum of one seed deal per month, investing in the range of $100,000 to $250,000 in “tech-enabled consumer businesses.” This is an increase from the roughly 15 seed stage deals it completed intermittently over the last two to three years.

“If anything’s changed, it’s that we’ve come to realize that every great consumer business is started by one or several great entrepreneurs, and we want to make sure that we get to them early,” Levitan says. “Every great outcome we’ve had has been a function of entrepreneur tenacity, grit, and passion, more so than the idea – for us it’s all about the entrepreneur.”

Levitan also indicated that increased competition at later stages necessitated to the move, as larger VCs have begun investing more into the consumer world in recent years. (With the cult of enterprise growing daily, this may not be a problem for long.)

The firm views its Seed program as a way both of identifying and getting access to future Series A investments, its “Core deals,” and also of learning about a space it’s particularly interested in. In this way, Maveron will follow on with just 10 to 20 percent of its Seed deals.

Although he admits that signaling risk is real and is a consideration in the model, Levitan hedges by saying that Maveron will invest in a Series A round where an institutional investor in the Seed stage did not follow on, so long as it has a clear understanding about why that was the case.

“In some situations, the signaling risk exists. In other cases it’s beneficial,” Levitan says.

Maveron is also careful to be as clear as possible with its founders in terms of expectations ahead of making Seed investments. “We ask, ‘What are you trying to create? Give us some metrics on which we can measure your success,’” Levitan says. “Then we tell them to build in some some cushion because things always take longer and cost more than you think.”

If the business succeeds in hitting its marks and looks likely to make a material impact on its $240 million fund, then Maveron writes the bigger Series A check. Although the seed bets will come out of the same capital pool, and be managed by the same partners, they will follow a very different process than later stage deals.

First, the deals will not require full investment committee approval and the due diligence process will be significantly more limited than in later stages. Rather, if one partner is willing to take the lead in championing the deal, and a second partner takes a look and signs off, then the that’s all that’s required.

“Our goal is to be extremely entrepreneur friendly at this stage,” Levitan says.

The decision to make one seed bet per month is a bit of an increase from the firm’s current levels, but it won’t be its first early stage bets. Maveron lent office space to and invested in zulily when it was an upstart in 2009 and led the seed round in Julep in September 2011, among other early investments made in recent years.

“I had alternative term sheets,” Julep founder Jane Park says. “What was amazing to me at the time about Maveron, is that they were really excited and saw the potential in consumer companies.”

Although Park did not give up a board seat with the early round, she began having bi-monthly coffee meetings intermixed with daily text message conversations with Maveron’s Jason Stoffer, who she describes as a trusted advisor.

According to Park, the biggest value of having an institutional investor lead her seed round was the access it provided. She has been a regular attendee at Maveron’s CEO summits where she says the unfettered access to later-stage ecommerce founders and CEOs has materially impacted her business. The firm was also instrumental in helping Julep secure venture debt early on to expand its business.

At just 18 months old, Julep just raised a $10.3 million Series B round from Andreessen Horowitz in February, after Maveron led its May 2012 Series A round, taking a board seat in the process.

Maveron is on its fourth fund, with a total of $780 million now under management – the majority of which is third-party institutional money, not just Schultz’s money, as many have assumed. Along the way the firm has had successful investments in Ebay, Lucy, Shutterfly, Drugstore.com, and Kinetix and is currently an investor in General Assembly, Lemon, PayNearMe, Pinkberry, and Groupon (in its later stages, unfortunately), among others. Maveron focuses its investments exclusively in consumer-facing products and services within three categories: commerce, education, and health and wellness.

“Technology will continue to enable new consumer businesses, but most consumer startups no longer require a substantial amount of capital to launch,” Levitan says. “We’re not trying to reinvent seeds, but we are trying to be recognized by entrepreneurs as the number one source of capital for early stage consumer businesses. I think the fact that we do this on a consumer-facing only basis is rather unique and creates a number of synergies.”