The San Francisco firm intends to begin investing as early as the end of this year and late last month joined a syndicate of firms providing $24 million in funding to TechStars startups.
The plan is to use the Internet to screen companies and set valuations. Startups fill out simple application forms (find them here). Right Side responds with near instant feedback.
“As far as I know, we’re the only ones who are going to do this,” says Managing Director Kevin Dick, one of four partners.
The firm first began talking about the model last year and last month revealed itself as part of the TechStars group guaranteeing each startup at the incubator $100,000 in funding. (Also participating in the funding are the Foundry Group, IA Ventures, Avalon Ventues, DFJ Mercury, SoftBank Capital, SVB Financial Group, RRE Ventures, TechStars Alumni, and several individuals.)
Right Side presently is raising its maiden fund, says Dick. He declined to discuss its size or committed LPs. But he said the firm is on track to begin investing as early as this year. Right Side expects to invest in several hundred companies over the three-year investment life of the fund and in the process examine as many as 10,000 business proposals.
To apply for backing, startups take to the Internet and submit information about a founder’s background, a team’s experience and the startup’s game plan. “We came up with a simple checklist,” says Dick. No in-person interviews will be conducted because they don’t contribute to better investment decisions, he says.
Once the online forms are completed, Right Side responds promptly with a pre-money valuation estimate and a notice that if it were presently accepting funding requests it would seek financial projections, a business plan and additional details about a team’s background. Right Side hopes to provide a yes or no in two weeks.
The most important thing at the seed stage is people, says Dick. Did a founder go to Stanford University? Does he or she have previous experience at a startup?
Setting valuations depends in part on the size of the salary an engineer or founder might expect at an established company. But other factors include company performance, such as user growth at a Web site.
Right Side plans to use a standard term sheets for its deals with no required board seats and 1x liquidation preferences. Dick anticipates the average investment for companies he meets over the Internet to be $150,000. Average deals for incubator companies will be more like $50,000.
Proposed valuations may seem low to Silicon Valley entrepreneurs, he says, but they will appear attractive to startups elsewhere in the country. Right Side hopes to cast a wide net for investment candidates.