SherpaVentures raises $154M maiden fund to offer a fresh take to value-added venture

By Michael Carney , written on July 17, 2014

From The News Desk

SherpaVentures may be founded by two men who have been mainstays in Silicon Valley for the last decade, but the young firm is looking to differentiate itself from the Sand Hill Road firms of yore. Being based in downtown San Francisco helps – but nearly every other top firm now has at minimum an outpost in the city – as does the relaxed, sportcoat-free vibe. But where pair are most unique is its their approach toward adding value beyond the capital they can provide.

Today, the firm co-founded former Menlo Ventures managing director Shervin Pishevar* and former Goldman Sachs managing director Scott Stanford announced that it’s finally closed its maiden fund, bringing in an impressive $154 million that will be directed toward early stage deals, meaning primarily Series A with a lesser mix of Seed and Series B.

Both Pishevar and Stanford share an impressive investing track record, with each helping their prior firms get early stakes in companies like Uber – a shared deal through which the two first met – Facebook, Linkedin, Spotify, ZenDesk, and AngelList. Between them, they also bring both operational experience and a strong transactional finance backgrounds respectively.

“It’s hard to find a five-person fund, let alone a team of two people that has financed $80B in transactions, operated successful companies, and advised on everything from startups to public companies,” Stanford says. “I like to think we have a real diversity of experience and diversity of perspectives on our team.”

But it’s their combined rolodexes, from which it would be hard to find a business or political leader they don’t know, that makes the duo a formidable and unique pair. The partners at other elite VC firms are well connected, no doubt, but Pershiver and Stanford are a rare breed of power-networkers and schmoozers that are as likely to be found on the red carpet or at a private high stakes poker game as they are at a Bay Area BBQ.

The power of these connections is apparent in the doors they’ve been able to open for their portfolio companies. For example, when Uber was recently searching for a new CFO, Stanford insisted the team was thinking too small, suggesting that its real target should be Google’s finance No. 2 Brent Callinicos. Uber CEO Travis Kalanick doubted that Callinicos could be persuaded, but Stanford arranged a meeting and 30 days later he joined in a then major coup for the rapidly maturing ride-sharing company. They later helped Uber recruit private equity titan and TPG Capital founding partner David Bonderman to its board of directors (TPG is the largest LP in SherpaFoundry).

But despite their influence, there’s limits to the bandwidth that Pishevar and Stanford have to serve their portfolio companies. With this in mind, the pair founded SherpaFoundry as a standalone consultancy alongside SherpaVentures. The advisory and incubation arm is led by a former Johnson & Johnson Tina Sharkey as its CEO.

Unlike the portfolio services groups within other top VC firms, the idea at SherpaFoundry isn’t to help startups with marketing, PR, recruiting, or accounting, all services which Stanford points out are readily available in the broader Silicon Valley ecosystem. Rather, this concierge-like group exists entirely to add more abstract but higher impact value through strategy consulting, business development, and out-of-the-box recruiting. SherpaFoundry is separately capitalized will be compensated for its work through a mix of equity and cash. The group may even work with non-SherpaVentures companies.

“It’s truly incredible what they’ve done in terms of institutionalizing the magic,” Stanford says. “We created this group out of necessity. We don’t have a huge fund that kicks off a lot of dollars in fees. We decided, instead of recreating what already exists, let’s take a different approach. Let’s do what we do best, which is strategic thinking and connecting the dots. Other top firms are now bringing us into deals because they think what we do is additive. They want us out there pounding the pavement on behalf of our startups.”

Make no mistake about it, $154 million is large for a first time fund. But it’s a number that was chosen very deliberately, according to Stanford. “We built a model and said to ourselves, we have two investors and we can do X deals over three years. This is the number of core holdings we want and we also want to be active in seed investing. The number that popped out the other end was $148.3 million – it sounds kinda silly, but it’s true. We said $150 million is the number, let’s go out and raise it. We couldn’t quite get it down that low once we added in our GP commitment so we ended up at $154 million.”

SherpaVentures has already deployed a third of its maiden fund, including checks written and additional capital set aside for follow-on to those deals. The firm’s early bets include technology hiring marketplace Hired, health and beauty brand Walker and Co., food delivery startup Munchery, on-demand shipping company Shyp, home repair pricing engine, and pet boarding marketplace DogVacay, among other yet undisclosed deals.

Many of these early deals were completed before SherpaVentures officially raised its first outside dollar. Pishevar and Stanford began by investing out of their own pockets, both to take advantage of opportunities already on the table and to establish an brief joint-track record against which to go out and raise – not that their prior performance left much to be desired. These deals were then rolled into the fund as part of their GP commitments. The first close of $90 million happened in January, with the remainder of the fund coming in by the end of Q2.

“The strategy ended up working really well, because it meant our fundraising conversations quickly went to our portfolio and why we made the deals that we did,” Stanford says.

In a trend that’s becoming increasingly common with small and medium sized VC funds, SherpaVentures expects to occasionally raise additional capital from its LPs via special purpose vehicles to invest in later-stage rounds of its best companies.

“There is a subset of our LPs that are highly engaged and sophisticated that we plan to target for deals like that,” Stanford says. “It may not have been possible in an earlier era, but we feel like there’s a greater level of market transparency and investor sophistication today. We have already done two deals like that. It works really well, but there are some obvious challenges. You definitely need to herd cats and get everyone aligned quickly. It works best with family offices, not large institutions like pension funds.”

For all their pedigree and the impressive first fund, SherpaVentures was born into one of the most competitive environments in the history of Silicon Valley. There are a dozen or more firms all competing for status among the “top tier” of VCs. And while declining cost of starting a technology venture has meant more noise at the early stages, there are still only a small handful of unicorn companies created every generation, meaning only a handful of deals that will make or break your fund’s performance.

“We have tremendous respect for the top firms,” Stanford says. “But each deal has unique circumstances, such as pre-existing relationships and partner-founder fit. We try to differentiate in the the value we can add – we really put our heads down and try deliver in unexpected ways that really move the needle. Most of our deal flow comes from our existing network or founders. We rely heavily on this – we really do zero cold calling.”

If you had to boil SherpaVentures down to an investing thesis, it would be that brand matters and consumer expectations are rapidly shifting. “What worked yesterday in terms of meeting consumer expectations is almost certainly not gonna work tomorrow,” Stanford says. One of the things that Stanford returned to repeatedly during our discussion was the idea of simplification. “It’s not about disintermediation, but rather elimination,” he says. “In a frictionless economy you can get rid of a lot of steps which allows you to do things like unlock excess capacity.”

Of course, Uber is as responsible as any company for this shift toward simplicity and delightful user experience, thanks to its introduction of an on-demand and near-frictionless mobile buying experience. “It’s not easy to build durable and loved brands. Technology is rarely a sustainable competitive advantage. It can give you a foothold or a head start. Look at Bing. Who cares if Bing’s tech is slightly better? People don’t say ‘Bing it.’ It’s not a verb.”

The choice of the Sherpa branding was no accident, Stanford says, describing it as a reflection of the relationship dynamic between the investors and their founders.

“We genuinely feel honored to be at the table. We’re not the capital, our LPs are. We’re not the founders. We’re there to assist. We’re the guys who carry the bags. We take that seriously, it’s core to our brand. And there’s an element of humor in it. These are our friends we’re investing in, they’re the the guys and girls we see out every night. When we first came up with the name, we didn’t even blink. It’s who we are.”

It’s obvious in everything from the language Pishevar and Stanford use to describe their market thesis to the stories they tell to convey their unique value add, that Uber played a large role in shaping SherpaVentures. But it’s the two men’s prior firms, not their current one, that stands to benefit financially from that deal. And there’s only so long you can ride the glory of that seemingly otherworldly outcome.

With fresh capital in the bank and a new brand to build, SherpaVentures will look to find its own 100X  success story. WIth Pishevar, Stanford, and Sharkey at the wheel, the firm is as well positioned as any to find and shepard the best deals. Whether they can truly stay in the background while doing so will be another test entirely.

[*Disclosure: Pishevar is an investor in Pando.]