A well-known Silicon Valley venture capital firm is taking an unusual approach to technology investing by giving millions of dollars to other investors, rather than to startups themselves.
Bain Capital Ventures, which has backed companies including LinkedIn and DocuSign, said on Tuesday it will start investing in “angel” investors – early-stage investors who are often the first source of capital for startups, providing a relatively small amount of money.
The plan, said Bain Capital Ventures managing director Salil Deshpande, who is overseeing the new program, is to invest $2 million to $5 million annually, spread across five to 10 angel investors. Specifically, Bain will sponsor investors listed on AngelList, a website that connects startups and investors. These angel investors have microfunds with a small portfolio of deals.
The move is a rare one for a VC firm and a sign of the upheaval rocking the industry, as traditional venture firms are squeezed by an influx of money in both early- and late-stage startup investing. Early-stage funds have multiplied and competition to fund young startups is fierce, while down the line sovereign wealth funds and hedge funds that traditionally back public companies are pouring dollars into late-stage startups.
As other investors move into earlier stages of startup investing, so, too, is Bain Capital Ventures, Deshpande said.
“We’re not necessarily doing this to try and find the one crazy startup idea,” Deshpande said. “I hope it happens. But that’s not the purpose of this. The purpose is to embrace the changes happening in venture.
“We should have added this to our playbook four years ago,” he added.
Bain Capital Ventures will not dictate where angel investors direct the money and will not have access to proprietary information about the startups. The hope, though, is that by developing relationships early on with startups through their angel investors, Bain will have a better shot at directly investing in those startups down the road.
“We hope it will bolster deal flow,” Deshpande said.
Bain chose to fund angel investors on AngelList because the website has the legal and back-office processes, such as automated investing agreements, to make it easy to give and receive funding.
Bain’s funding for angel investors will come from its $600 million fund raised in 2016.
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