Early-stage VC firm Defy.vc has closed on its third fund of $300 million to invest in pre-Series A funding rounds.
“That’s our core deal: where you need $3 million to $10 million to lead a seed-plus or A-minus” round, said Neil Sequeira, who co-founded Woodside, California-based Defy.vc after leaving General Catalyst to focus on this niche stage.
The firm has already made a couple of investments from fund three, including one in blockchain infrastructure and another in real estate — deals it said will be announced in the coming months.
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Most of the commitments to fund three were made in early 2022 with supportive insiders. The firm kept the fund open to add some new investors when the market soured. It decided to wait to announce as it was still investing from fund two.
The firm intends to invest in 33 core companies from this new fund, slightly up from the 27 out of fund two and the 19 core companies in fund one.
Defy will reserve more than double the initial funding to invest in future rounds. And with 90% of the fund in these core companies, the firm also invests around 10% in smaller seed deals where it has relationships with founders.
From his experience investing at General Catalyst, Sequeira found that a lot of the returns came from early-stage investments.
Fund three is double the size of its inaugural fund raised in 2017 and closer to the $262 million announced in 2019 for fund two. Sequeira notes, however, that in two very different funding climates comparing its 2017 to 2020 funds, “our entry point valuation between fund one and two, the difference was 3%.”
It owns an average of 17.6% each in its eight most promising companies, Sequeira said.
A niche market
On funding early-stage companies at late seed or smaller Series A, startups don’t need another party round. “You need somebody to actually sit on your board and be your partner,” said Sequeira.
“We felt this really strong pull to this niche market, where you could sit on boards, be active, lead investments and be really helpful to entrepreneurs.”
Notable investments from Defy’s first fund include:
- Airspace Technologies, which makes technology for time-critical logistics and says it has reached nine figures in revenue.
- Direct homeowner real estate marketplace Aalto.
- Pawlicy Advisor, a marketplace for pet insurance.
Fund two investments include:
- Novi, a technology platform to help enterprise customers to access data on ingredients in a product.
- Apploi, which makes software for health clinics workforce management.
- Bazaar, a Pakistan-based company that connects mom-and-pop stores with wholesalers.
- Arena Club, a sports cards trading startup co-founded by Derek Jeter.
Illustration: Dom Guzman
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