Foundation Capital Raises $600M Fund - Backs Solana & Cerebras

Foundation Capital's Growth and New Funding

Foundation Capital has experienced significant progress since being compelled to reduce its fund size from $750 million in 2008 to $282 million, representing its sixth primary fund, in 2013.

The firm announced on Tuesday the successful raising of a $600 million eleventh flagship fund. This represents a 20% increase compared to the $500 million fund finalized approximately three years prior.

Focus on Seed-Stage Investing

Foundation Capital attributes its resurgence to a consistent dedication to its core competency: seed-stage investing.

General partner Steve Vassallo explained to TechCrunch that unlike many firms with a 30-year history, which often diversify into multiple stages, geographies, and strategies, Foundation has maintained a strong focus on the early stages of company development.

Foundation Capital consistently acts as the initial institutional investor in over 70% of the companies within its portfolio.

Identifying Emerging Markets

The firm actively seeks opportunities in nascent markets, which Vassallo describes as "$0 billion" markets within enterprise technology, artificial intelligence, fintech, and cryptocurrency.

These are markets that are brought into existence through the vision and efforts of founders.

As an example, Vassallo highlighted the launch of Cerebras in 2016 from Foundation Capital’s offices, noting that the AI chip market was, at that time, almost nonexistent.

AI workloads were minimal, and Nvidia’s GPUs were primarily utilized by gamers and graphic designers.

Cerebras has since expanded to a valuation of $4.25 billion. The company submitted an S-1 filing for a public offering last autumn but delayed its IPO due to a review by the Committee on Foreign Investment in the United States (CFIUS).

Early Investments and Founder Identification

Foundation Capital was also the first institutional investor in the blockchain platform, Solana.

Vassallo likened their approach to identifying founders to the concept of "pre-criminals" in the film Minority Report.

He jokingly mentioned that they sometimes aim to identify founders even before they have departed from their current employment.

The firm believes that by fostering new markets, its successful investments achieve category dominance, resulting in significantly improved returns.

Fundraising Success and LP Returns

Vassallo connected the firm’s ability to secure a larger fund than its predecessor to its track record of substantial cash distributions to Limited Partners (LPs).

“Over the last three years, we have returned approximately $1.4 billion to our LPs,” Vassallo stated, adding that this amount exceeds three times the capital called from investors during that period.

Recent successful exits contributing to these returns include the sale of fraud detection company EvolutionIQ to CCC for $730 million and the acquisition of cybersecurity startup Venafi by CyberArk for $1.5 billion.

Maintaining Strategy and Addressing Market Changes

While remaining committed to its early-stage investment strategy, Foundation Capital recognizes the need for a larger fund due to the increasing size of seed and Series A funding rounds.

The firm aims to maintain ownership of 15% to 20% of each company at the initial investment stage.

Changes in Firm Leadership

A notable change within Foundation Capital is the retirement of Charles Moldow, an investor with nearly 20 years of experience at the firm and a backer of companies such as LendingClub, Rappi, and Kiavi.

This leaves Foundation Capital with a team of four general partners.