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.
- 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