TL;DR: Notation capital invest small dollar amounts in extremely early technical founders or founding teams in New York
This is the Notation capital investment thesis. Notation Capital based in New York City are new kids on the block. They have written a series of decent blog articles to get their name out as well as sharing a clearly articulated investment thesis in their vc pitch deck, which is not something one sees often. What is noticeable is the very early stage nature of their fund which got startups talking, they will invest in ideas on napkins. Could be dangerous in some scenarios.
They describe their positioning as “true risk capital investors“:
We’re calling Notation Capital a pre-seed fund, but really all that means is that we’re true risk capital investors— investing relatively small dollar amounts in extremely early technical founders or founding teams with the enduring will to bring interesting and innovative projects to life.
And being clearly focused on a gap in pre-seed funding:
Notation Capital is built to fill this awkward early gap, supporting project and company building at the very earliest of stages. We believe the concept of “pre-seed” is a natural evolution in the cycle and will become standard in the next few years (until of course there is pre-pre-seed). A pre-seed investment is in many ways a more agile form of early startup financing, it allows the founder(s) to quickly get back to work on the product and is less dilutive than the standard seed round today.
They posted an interesting article in response to queries on the amount they charge in management fees- $1m on a $6m fund – 16.6% of the fund. They get into the details in article which makes for good reading.
Notation Capital does not have a 2% management fee, but instead runs on a budget that we share with our LPs. We’ve capped the total expenses we can spend over the entire life of the fund at $1M (including salaries, office space, fund admin, legal, etc), and hopefully we’ll spend less than that. We believe this transparency more fully aligns our spending with the interests of our LPs.
In another blog, they talk about “what we do and don’t do”. They clearly set out they are active but will not actually run the startups they invest in:
- Roll up our sleeves and help as much as we can in key areas early on. Most of our time is spent helping with technical team building / recruiting, product development, and capital raising. Alex will jump in and write code, but not often, and is most helpful with higher level product architecture decisions.
- Make ourselves available 24/7. We are on call. Chris Howard, who I believe is one of the best early stage investors right now, once said to me he ideally wants to be the call before the board. In looking back over the last several years as an investor, the most meaningful relationships are the ones I’ve built with founders where I’ve earned the trust to be the first call.
- Try our very best to be eternal optimists, but don’t shy away from giving honest feedback, even if it’s hard to say or hear.
- Pride ourselves on building an environment of trust and calm for founders. Building a startup can be really stressful (and at times downright depressing). We want our interactions with founders to be as stress-free as possible.
- Run your company, build your culture, or pretend to understand the problem you’re solving or customers as well as you do.
- Hire and/or fire founders.
- Pretend that what we’re doing as investors is nearly as difficult as what you’re doing as founders.
- Have a formal application process. You can get in touch with us anytime by sending us an email. We respond to every email sent to us in a timely manner.
- Run “demo days.” Although a demo day can be an effective way to help startups raise capital and create the perception of urgency around a fundraising, the basic construct has always made us uncomfortable (as well as many founders we’ve spoken to). We don’t want to parade the companies we invest in on a stage to pitch their idea in 3 minutes to a room of faceless investors. Instead, we believe that by working closely with each startup we invest in, we can help run a formal fundraising process and make sure each company meets the right investors that will take the time to understand the business they’re building. There are ways to run a fundraising process that is efficient and creates urgency without using a demo day stage (in fact it happens this way more often than not).
- Take board seats and/or make board level / executive decisions.
- Lead institutional seed rounds, but we may invest our pro-rata share in future financings where possible
There’s an understanding that millions of dollars of seed capital can come at a cost — that there’s a category of company that requires less capital and for whom a check that size is either too early or unattainable, and that too much money can cause harm to the initial product and business.
Notation capital’s investment thesis and pitch deck
Notation capital fund 2 pitch deck
This is the deck they used for their first formal annual LP meeting (Redacted)
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