Interview, Fireside Chat
Mark Goldberg: Why Politics is Rife & Decision-Making is Broken in Large VCs | E1219
- Harry Stebings and Mark Cooney (along with partner Christina) launched Chemistry, a new $350 million fund, positioning it as a contrarian response to the "industrialization" of venture capital.
- The firm argues that legacy multi-stage platforms have become "consensus funds" where bureaucracy and portfolio services teams serve VCs rather than founders.
- Chemistry operates as a single-trigger model, allowing any of the three partners to make investment decisions unilaterally to avoid the "errors of omission" common in consensus-driven firms.
- The fund focuses on Seed and Series A stages, aiming for a pace of 2–3 investments per GP per year, with a target portfolio of ~25 companies per fund.
- Chemistry employs a light reserve model, rejecting the strategy of "peanut buttering" reserves across every pro-rata round to maintain flexibility and avoid over-allocation.
- The firm targets $10M–$15M lead Series A checks, though they are willing to stretch to higher amounts if there is extreme conviction in a category winner or founding team.
- The decision to raise a new fund was driven by a desire to fully align GP and founder values, specifically by offering experienced investors with "time to spend" and "hustle."
- Cooney notes that younger founders often crave established brand names, whereas second-time founders (the "second-tier" cereals) are more likely to choose a new firm based on the personal relationship and lack of baggage.
- The fundraise concluded in summer (June–August), taking roughly 2–3 months, and was oversubscribed with approximately 100 LP meetings resulting in ~20 commitments.
- The primary reason for LP rejections cited was team risk, specifically the lack of a prior working history between the three founding partners.
- Chemistry rejected the "zero harm" philosophy for early-stage investing, asserting that excellent investors must build trusted relationships, including being available during "magic moments" of founder uncertainty.
- Cooney identifies hiring as the primary execution risk post-product market fit, emphasizing the need for founders to have the right GTM leaders before scaling from "one to ten."
- The partners prefer serial founders over first-timers for their existing networks and reduced ramp time, though they acknowledge the "naivety" and "hunger" of first-time founders as a potential advantage.
- Cooney challenges the notion that large brand names help with hiring or customer acquisition, arguing they primarily assist with securing follow-on funding.
- Chemistry will operate with a small junior team of two, rejecting the hierarchy and bureaucracy of large institutions while leveraging the partners' combined experience from previous multi-stage platforms.
- The partners aim to avoid category selection bias (e.g., dismissing lending or ad tech outright), warning that deep industry knowledge can sometimes lead to "outsmarting" oneself and missing disruptive opportunities.
- Cooney observes a "sucked out" oxygen effect in the AI sector, where the premium for ".ai" domains is diminishing as the market demands sustainable business models over hype.
- The firm has implemented a valuation discipline clause, requiring founders to be 90% confident they can 3x their valuation before the next round to prevent morale-crushing down rounds.
- Despite concerns about capital concentration limits (typically capping single investments at 10% of the fund), Cooney admits he would make exceptions for potential winners like Airbnb, acknowledging that constraints can limit returns.
- Cooney advocates for "brand deals" with tiny ownership stakes in major winners to establish ecosystem alignment, a strategy supported by some of the fund's LPs.
- The partners believe the 2021 vintage will face significant challenges but likely return better than 1x, noting that companies with unrealistic valuations are already suffering from a loss of momentum and morale.
- Cooney identifies Mike Volpe (ex-Index Ventures) as his most significant mentor and notes that the "fastest gossip" in venture (via WhatsApp groups) often damages founder fundraising more than direct competitor pressure.