Investing Guidelines

Founders in Spearhead should create proprietary dealflow—not pay up for hot rounds they just met.

To make good investments, you should:

  1. Invest only in your domain or in tech teams you know very well
  2. Invest only in companies with the potential to produce 100x-1,000x returns
  3. Lead rounds as often as possible
  4. Set a high bar for quality and make high-conviction investments—i.e. no spray and pray
  5. Maintain an average pre-money valuation below $10M across your portfolio

Here are some additional guidelines to follow.

Companies

Invest only in:

  • Pre-seed and seed stage companies
  • Domains or technology teams you know well
  • Companies with a potential for 100X-1,000X returns. Without these large exits, your portfolio will not achieve a venture return.
  • Technology companies. Avoid consumer goods, e-commerce, gaming, lifestyle, media and retail companies unless they have unique technology leverage. Also avoid niche markets and therapeutics which require FDA approval.

Judgment

  • Aim to be “first check” as often as possible
  • Keep a very high bar for quality: Make a few high-conviction investments in markets and founders you know well
  • If you see any integrity issues, don’t invest
  • There’s no penalty for not doing deals: It should take a year or longer to deploy your first $500K
  • Seek out your mentor before your first investment to test your thinking

Deals

  • Invest on standard SAFE or preferred equity documents
  • Buy at least 1% of the company
  • Aim for a pre-money valuation below $10M
  • Don’t do uncapped notes
  • Ask for pro-rata rights
  • Make sure the company has at least 9 months of runway after your investment
  • After you invest, help the company raise money from a top-tier seed fund or VC as quickly as possible
  • Avoid bridge rounds where a company has a flat valuation or raises less money than their previous round
  • Invest only in U.S. C Corporations. Please inquire if you are considering investing in an LLC, B Corporation or foreign corporation
  • No cherry-picking: Make all your tech investments through your fund

Common Mistakes

  • Investing outside of your domain or in teams you don’t know well
  • An average pre-money valuation over $10M
  • Spray and pray: High volume, low conviction investing
  • Joining rounds because your friends or notable investors are investing 
  • Investing in companies you met at demo days (You should invest as early as the incubators do)
  • Failing to call the Spearhead partners or mentors on your first deal