At the early stage, plenty of investors are willing to write a check to smart entrepreneurs who seem to be tackling interesting problems. This is particularly true if you’re in a startup hub like Silicon Valley, New York, Los Angeles, Boston, and so on. As a result, investors seek to differentiate themselves through brand – both at the firm and individual level – and through offering value-added services like recruiting, marketing, business development, design, and others. Venture dollars have become commoditized, and it’s getting to the point that venture services are, too.
Los Angeles’ newest early stage fund, TYLT Lab, is taking this a step further. Co-founded by Rami Rostami, founder of the wireless accessories company Technocel, TYLT plans to offer entrepreneurs access to physical manufacturing (including 3D-printing and prototyping), fulfillment, and distribution infrastructure as part of its “Shared Services Platform.” This is something that few venture investors can offer, and given the pivotal role that supply chain operations play in the success and failure of ecommerce and hardware startups, it has the potential to be more than mere marketing. TYLT will also offer portfolio companies software and app development, management, and product development services.
For tangible-goods startups (think consumer electronics and fashion), developing a prototype and then an early product are among the biggest hurdles to cross. But the fun doesn’t end there. Manufacturing is often a nightmare and costs an arm and a leg to outsource. Imagine if Pebble or any number of other Kickstarter success stories had access to an off-the-shelf supply-chain solution – production and delivery delays would likely decline precipitously.
Streamlining the supply-chain process and creating a partnership where both parties’ incentives are aligned – as an investor and its portfolio companies are – has the potential for real impact. TYLT Lab should have the chops to deliver on its promises as well. Early on, Technocel worked with many of the largest mobile carriers and handset manufacturers in the world, according to TYLT co-founder Gerard Casale, meaning that its supply-chain muscle is the real deal.
“We have a platform that has been tested with Fortune 100 companies over the past 20-plus years,” Rostami says.
The venture services model isn’t new. Some of the best known firms take a similar approach including Andreessen Horowitz*, Lightbank, and First Round Capital* (mostly software-based), among others. Where TYLT stands apart is in moving beyond so-called soft skills like legal, recruiting, and marketing to offer the type of infrastructure that can make or break startups dealing in physical goods. The only other group I’ve encountered to offer this type of service is the PCH Accelerator (aka, “Highway 1”), a Silicon Valley-based program created by Chinese outsourced manufacturing giant PCH International. But PCH participants only get $20,000 in funding to go along with the supply-chain help, while TYLT can offer its portfolio companies seven-figure financing.
Initially, TYLT will invest out of a $20 million capital commitment from Rostami himself, making it in essence a family office. But, according to co-founder Gerard Casale, the firm is in the process of closing additional limited partners (LPs) and will operate like a traditional venture firm with multiple, independent LPs. TYLT looks to make 12 to 15 Seed and Series A investments annually of between $50,000 and $2 million per deal, either as a lead or a participating investor. The firm describes its interest areas as consumer electronics, technology, telecom, consumer goods, clean technology, healthcare, entertainment, and fashion.
TYLT has already completed three investments: B2B ticketing company Tixr, in-venue ticket upgrade platform Pogoseat, and “Uber for trucking and shipping” company Cargomatic. Prior to forming TYLT, Rostami and Casale invested early in social product development juggernaut Quirky, among other startups.
Casale is a recovering securities attorney, entrepreneur, and angel investor with several decade of experience in startup technology. In 2000, he founded the technology development group X-Laboratories in partnership with Hughes, Boeing, GM, and Raytheon and later sold the venture in 2003. He was also a co-founder of Tawlkin, a mobile platform for group voice-communications, and VMS Holdings, a voice messaging service.
Rostami and Casale aren’t new to startup investing, but the pair decided to form TYLT to formalize their activities and establish a clear thesis, value proposition, and track record. Both are based in LA and expect a significant portion of their deal flow to come from within the region.
“We believe that the local startup ecosystem has finally reached a critical mass in Los Angeles – specifically in the Silicon Beach area – and our fund intends to be in the middle of all the action,” Casale says.
TYLT plans to get its hands dirty, so to speak, though a high level of involvement with each company it backs. This could include supply chain consulting or other strategic functions based on need. Not every entrepreneur wants such hands-on investors. Many just want their money and to know advisors are a phone call away when needed. TYLT won’t force portfolio companies to use its services or tap into its expertise, Casale says, but adds that the companies it ends up backing will likely self-select for those looking to avail themselves to it.
Solving the supply-chain riddle gives any startup manufacturing and delivering physical products a leg up. But as important as it is to success, it’s just one problem these companies need to overcome. TYLT’s success (or failure) will ultimately boil down to its ability to the same things that confront traditional VCs: identifying and refining winning products (physical or digital); and, helping portfolio companies recruit senior talent, conduct business development, and source follow-on capital. As a newly formed firm, TYLT’s abilities to do these things effectively remain unknown.
For years, LA has been known as a place with less startup capital than its NorCal and East Coast cousins. More recently, LA has seen a glut of early stage capital from angels and micro-VCs, but remains underserved at the upper reaches of the capital foodchain, specifically firms willing and able to write $5 million plus checks (large Series A or Series B and beyond). TYLT is no doubt entering the most competitive portion of the local market, but there’s no two ways around it, the firm offers something that no one else does.
Given LA’s reputation as an ecommerce breeding ground and the hardware revolution that’s taking place, Rostami and Casale appear well-positioned to access some of the region’s best deal flow. Whether they can turn this access into venture caliber returns is another matter.
[First Round Capital is an investor in PandoDaily, as are Andreessen Horowitz partners Marc Andreessen, Jeff Jordan, and Chris Dixon as individuals.]
- TYLT LabTYLT Lab is a venture capital and advisory group.
Tylt Lab is a venture capital and venture advisory group based in Santa Monica, California. Our focus is identifying, capitalizing, and building innovative, high growth companies. We are entrepreneurs ourselves, and have a hands-on approach to working with founders. Put simply, we believe in adding value, not just adding capital.