8-Bit Capital, co-led by Jonathan Abrams, has closed its first fund with $40 million

Jonathan Abrams and Kent Lindstrom have partnered on a lot of things over the years. Lindstrom was an advisor and investor at the early social networking service Friendster, founded by Abrams. He was also the COO of social news aggregator Nuzzel, which was founded by Abrams and that sold to a subscription startup called Scroll in 2019. (Scroll later sold to Twitter, which shut down Nuzzel in May).

Because both have been angel investing all the while, and because there’s still a lot of money looking to find its way into startups, it isn’t surprising that they decided more recently to raise an actual seed-stage fund from outside investors, or that they decided to invest it together.

Thus was born 8-Bit Capital, a brand that refers to a time when computers were only able to store a maximum of 8 bits per data block, resulting in the blocky graphics that people who grew up on Atari remember well. Now, the duo is taking the wraps off 8-Bit’s first fund, a $40 million vehicle that they raised from a wide number of well-known VCs, as well as several institutional investors. We talked with Abrams earlier about some of those backers, who he asked we not name publicly (to shield them from more capital requests). We also talked about how he and Lindstrom are thinking about competing in the frothiest venture market ever and how focused (or not) the duo will be on social platforms, given their history. Our chat, below, has been edited lightly for length and clarity.

TC: Why jump into VC full time right now?

JA: We’ve been helping other entrepreneurs for a long time, and the feedback from a lot of entrepreneurs over the years is that they really appreciated he advice that we’ve given them. Part of that may be because the venture capital “value add” may may be a little overhyped in the industry, and part may be that Kent and I are just good at it. So even though there’s a lot of investors out there, we thought it did make sense for us to do this.

TC: What are your most successful “exits” as an angel investor?

JA:, I would say that the best companies, or the most successful ones, still haven’t exited. That’s the crazy thing about about doing angel investing or venture capital — the early exits can be good but the the real winners take a long time. I was an investor in [the e-signature company] Hello Sign, which was acquired by Dropbox [in 2019 for $230 million in cash]. I was invested in [the content sharing platform] SlideShare, which was acquired by LinkedIn [in 2012 for $119 million in cash and stock], and those were very profitable exits. But some of the companies I invested in, like Instacart or Front or AngelList, are still not exited, and they’re doing extremely well and will be extremely profitable investments,. But it does require patience. There are companies that are worth tens of billions [of dollars], but oftentimes, the entrepreneurs have been working on those companies for a long time.

TC: You’re obviously a pioneer in social media, having started Friendster more recently started Nuzzle. Meanwhile, social media is hot again. How interested are you in social as an area of investment?

JA: We’re open to it, but it’s not the area we’re most focused on right now, and I think that’s because of opportunity. Every week, somebody sends us some new social media pitch, but I’m still waiting to see something that’s crazy and innovative. Usually we just see things like, ‘We don’t like Facebook; we’ll somehow be better. ‘

What we invest in is software. We’re not investing in biotech or mattresses or coffee or spaceships. Software that connects people or businesses in new ways is what Kent and I are really passionate about.

TC: How can founders reach you? Do they need a warm introduction?

JA: introductions are great. We like to see an entrepreneur who can network. If nobody on the founding team of a company has the ability to get introductions to investors, then how are you going to get introductions to customers and build your team and all those kinds of things?

On the other hand, I’m on the board of Girls in Tech, and Kent and I really care about diversity and we know that requiring an intro can be an impediment to improving the diversity numbers in an industry that really needs improvement. Soif somebody sends me a cold email, I’m going to look at it.

The problem is, I get a lot of cold emails, and they’re all terrible. They’re generally really long and don’t contain any of the information you need. So If [we’re sent] a cold email, we would probably read it, but in general, the cold emails we get are just not compelling. Most of the companies that we’ve invested in, some of them have been entrepreneurs that we already know, and many of them have been referrals. Generally, we like to get deal flow directly from entrepreneurs, and when other VCs send us deals, we usually don’t do them for various reasons.

TC: Wait, why not? Because they are probably sending the same deal to everyone at once?

JA: One issue is adverse selection where, if this is something that a VC is sharing around and didn’t gobble up that allocation themselves, there may be an issue there. Another issue is timing. We like to know a company super early — ideally before other VCs really know about it.

Source Link 8-Bit Capital, co-led by Jonathan Abrams, has closed its first fund with $40 million