Responding to a popular request, we are now sharing transcripts of our investor podcast interviews in this new series. The following interview with Gaurav Jain of Afore Capital was recorded in February 2018.
Gaurav Jain is Managing Partner at Afore Capital, a firm focused on pre-seed investments. This is an excellent conversation for entrepreneurs looking for insights into pre-seed.
Sramana Mitra: With your specific focus, which is pre-seed, we are are very interested in hearing your perspective because, as you know, that part of the ecosystem is very underserved. People want validated
businesses. Now the pre-seed is where the tricky part of the equation is. Tell us about Afore Capital. How are you positioning yourself?
Gaurav Jain: Afore Capital is a $47 million vehicle exclusively focused on investing in pre-seed companies. That makes us the largest fund that’s focused on pre-seed. My partner and I started this fund in 2016. Both of us had been in venture for a few years. I’m a software engineer by training. Then I moved into product. I was one of the product managers for Android for a few years.
Then I switched gears into venture at a fund called Founder Collective doing seed investments. What I noticed over the past four years is that the million seed round when I joined Founder Collective in 2012 became $2 million to $5 million. For most of these companies, seed round was not their first round. They had to raise some money before that because as you mentioned, investors are looking for scale and some level of traction before they’re ready to invest.
These founders struggle to raise these rounds before the seed round because there weren’t just that many institutional investors willing to invest. My partner is also a software engineer. He was the first product manager at Twitter. He was an investor in the Series A and B fund of Foundation Capital. Both of us noticed something similar.
There was this gap for founders to be able to raise that first round of funding before there’s traction and product market fit. We saw that gap. We saw that as an opportunity. We left our respective funds and raised money from institutional investors who also saw this opportunity to fill this gap and have outsized returns. We’ve invested in about 20 companies so far. Our typical check size is somewhere between $250,000 to $800,000.
The smallest one we’ve done is about $330,000 and the larger tend to get to $1.5M. These companies were not ready to scale sales and user acquisition. They really had to focus on product. Given my background as a product manager, we could identify strong product talent, which is what we look for above all else. Because there’s no traction yet, we need to get some level of confidence that when you do launch this product, it’s going to take off.
The way we do that is to understand how good the product DNA of the team is and what non-obvious insights does the team have around building this product. If we get excited, we make an investment and get very actively involved with these companies between the pre-seed and seed. In some cases, we’ve seen companies go straight from pre-seed to Series A. It really depends on what you can accomplish in that 12 months post investment.
Across the board, some are B2B building SaaS enterprise software. Some are B2C. We’re less caught up on these factors. We’re more interested in the application use case. We believe that the founders know exactly where the opportunity is. They can point us to where the world is going. We don’t get too caught up in predicting where the world is going to go. Instead, we spend our time looking for the best founders early when we can be helpful.