Tandem Entrepreneurs - a new type of VC

Posted on September 18, 2007
Filed Under Venture News |

Tandem Entrepreneurs, is a some combination of venture capital firm and incubator. This is how they describe themselves:

There’s a new type of VC in Silicon Valley that’s uniquely focused on smaller Web 2.0 companies that don’t necessarily fit the traditional VC model. Tandem Entrepreneurs funds around $850,000 where a regular VC looks for a $15-20m investment. Tandem also provides their own engineering talent unlike traditional VCs. Tandem believes that social networking, new software platforms, and open source make it so much easier and faster to build a company that traditional VCs cannot meet the demand.

Doug Renert, one of Tandem Entrepreneurs’ founders, has kindly agreed my questions:

How your model is different from traditional VC? Funding amounts from $500,000 to $3 mln are fairly common, so $850k is not some sacred figure self-explaining your model.

You’re absolutely right - funding is available at varying levels from many sources. The money is secondary in our model. We invest our sweat first and foremost, which solves the largest hurdle that many early-stage companies face - hiring. It’s easy to gather a founding team, but very difficult to convince non-founders to take the risk. We serve as the extended team for each company, allowing them to focus on building the product and getting to market immediately. Our approach also reduces each company’s burn rate since they don’t have to bring on high-priced executives. This allows the small amount of capital we invest to last two or more years - enough time for these businesses to gain market traction and even be acquired in many cases. We put in the $850k with the idea that it will often be the only funding the company ever needs. With this approach, we make smaller exits (for example, $10M) lucrative for everyone involved. VCs typically invest small amounts of funding with the intention of following up with much more to drive very large liquidity events down the road.

Is your model similar to Ycombinator? Some kind of incubator?

There are some similarities. We both believe in keeping the option of early exits open, and we base our model on the notion that small teams can accomplish a lot very quickly and efficiently. However, YC helps founders turn ideas into products over a three-month period. We help founders get their businesses to market traction over a two-year period. In fact, we might fund some companies when they “graduate” the YC program.

What is your fund’s capital?

$15M. We intentionally kept it small to align with our own model of contributing our sweat and small amounts of capital. Larger funds are forced to make larger capital investments.

Have you already invested in some companies? I did not find your company portfolio on your website.

Yes, but we haven’t announced any yet.

Do you limit investment scope of Tandem Entrepreneurs to web startups only?

We support businesses in which products can be built with small teams and taken to market without a field sales force. These are typically software and internet companies leveraging opoen source software, agile development platforms, and/or social networks to build, launch and grow their services quickly. We’ll consider other technology businesses that fit our criteria, but in all cases, the road to success or failure must be very fast and efficient.