Hustle Fund Raises $33.6 Million to Democratize Access to Pre-Seed Capital

The general partners at the Hustle Fund don’t need to be told that the fund’s strategy of investing $25,000 initial checks into “hilariously early” companies goes against venture capital norms.

“I think the first reaction is a consistent’ says cofounder Eric Bahn. But perhaps trickier, it has appeared to resonate so far for Bahn and his fellow partners Elizabeth Yin and Shiyan Koh with the group they care about the most: entrepreneurs. Hustle Fund’s first investment vehicle backed 101 startups. Now with a $33.6 million second fund, Hustle Fund is looking to invest in 200 more, Bahn said.

Hustle Fund’s second fund is about three times larger than its first, announced in September 2018; new of the fund’s pending status was reported in November. New to California-based Hustle Fund’s investors this time is Foundry Group Next; LINE Ventures and Shanda Group re-upped after backing the first fund, too.

Bah, Koh and Yin initially teamed up in 2017 with a shared question: “why do the same type of dudes get disproportionate access to seed capital?”

Yin and Bahn worked at early-stage venture fund 500 Startups at the time, and Koh as a vice president at NerdWallet. Tech veterans all, the trio doubted that the disproportionate access to capital that men in the startup ecosystem enjoyed derived from similarly disproportionate talent.

The Hustle Fund thesis: because many pre-seed, earliest-of-stage startups don’t have sales numbers or customer acquisition figures to share, their founders often rely on pattern-matching pedigrees or warm-introduction-based first impressions to secure crucial first investment dollars to build their businesses.

By writing initial checks of $25,000, sometimes after just one phone call, Hustle Fund looks to support entrepreneurs who might otherwise not get noticed, then work to write bigger checks to some later. “It’s all about moving the due diligence to the phase where you can execute alongside the team and have a much more informed edge,” Bahn says.

Hustle Fund’s partners insist their style isn’t a twist on the “spray and pray” approach of indiscriminately backing as many companies as possible with the hopes one will prove a major hit. The firm reviews about 500 companies per month, the partners say, with only 1% or 2% receiving an initial check. Of those, about one-quarter receive additional capital of $250,000 to $500,000.

The firm credits this approach as a factor in building a diverse portfolio: 38% of portfolio companies in Fund I have at least one female cofounder, while 17% have a Black or Latinx cofounder. 

The approach also means that while Hustle Fund is open to most sectors and startups across North America, the firm’s investments often fall within categories including business software, fintech and consumer digital health categories that aren’t capital intensive and don’t require a significant customer base to make money, says Yin.

Recent investments include Boston-based Unstack, a marketing SaaS company, and Nest Collaborative, an on-demand lactation counseling service.

“Because we are former entrepreneurs, and we’ve seen a lot and done a lot of investing, we have a good sense of what things are really hard to acquire customers for and what things have a path to market,” Yin says.

And that means that plenty of times, the fledgling companies Hustle Fund meets aren’t well-suited to standard VC dollars. The firm is doubling down on an initiative it incubated in recent months called Hustle Flywheel.

A separate revenue-based financing entity with a dedicated team, Flywheel has already deployed $2 million in non-dilutive capital to startups and small businesses to date, says Koh.

Such businesses may not be appropriate for venture returns, she adds, but they can still be healthy businesses with good use for expansion capital. “We are interested in getting as many people to start and succeed as possible,” Koh says.

Their fundraising behind them, Yin says the Hustle Fund partner plan to move fast, backing new companies as frequently as once a week. “VC as a job is not what excites me, what we are trying to do at Hustle Fund is much larger,” she says.

It’s a challenge that will likely take much more than two modestly sized funds to address. But Yin and her partners believe they’ve made progress in answering their original question: “Is the system fair, and can anyone build a better system, and build it well?”