Investing Guidelines

You should create proprietary dealflow, not pay up for hot rounds you just met. By participating in Spearhead we expect you to: (1) Only invest in your domain or tech teams you know very well, with the potential for 100X-1,000X returns, (2) lead rounds as often as possible, (3) keep a high bar and make high-conviction investments—no spray and pray, (4) average pre-money valuation under $10M across the portfolio.

In detail:

  • Only invest in pre-seed and seed deals in your domain. If you’re investing outside of your domain, you should know the founders very well.
  • Look for companies with a potential for 100X-1,000X returns. Without these large exits, your portfolio will not achieve a venture return. 
  • Lead rounds and aim to be “first check” as often as possible. Use your name and commitment to help raise the rest of the round. (You can secure a larger allocation at a lower price by closing your investment before the round even comes together—consult the Spearhead team if you want to try this.)
  • Buy 1% of the company with your investment (e.g., $50K @ $5M post, $100K @ $10M post, etc.). Keep your bar very high. Make a few, high-conviction investments in sectors and founders you know well. It should take approximately 12 months to deploy the first $500K; there’s no penalty for taking longer or not doing deals.
  • Under $5M pre-money valuation is cheap, $5-10M is standard, $10M+ is expensive. Don’t do uncapped notes.
  • Only invest in technology companies. Avoid pure e-commerce, retail, media/content companies, consumer goods, lifestyle businesses, pure gaming businesses. Also avoid therapeutics (FDA approval) and niche markets.
  • Call your mentor on your first deal to stress test your thinking
  • Make sure companies have at least 9 months of runway after the financing. 
  • Avoid bridge rounds (raising less money than the previous round). Normal rounds tend to have a substantial valuation increase and a new lead investor.
  • Help the company raise from a top-tier seed fund or VC as quickly as possible after you invest.
  • Invest on standard SAFE or preferred equity docs. Ask for pro-rata rights. Invest only in U.S. C Corps. No LLCs, B Corps or foreign corps without asking.
  • Don’t invest if you see any integrity issues with the founders. 
  • No cherry-picking: make all your tech investments through your fund.

What we don’t like: 

  • Investing outside of your domain or in teams you don’t know well
  • >$10M average pre-money valuation across your portfolio 
  • High volume, low conviction investments in many companies (“spray and pray”) 
  • Joining rounds because your friends or notable investors are investing 
  • Investing in companies you met at demo days; you should be investing as early as the incubators themselves
  • Not calling the Spearhead partners or mentors on your first deal