But looking at home run venture outcomes, co-investors clearly play a weighty role. Just as some firms have a history of outperforming their peers, certain venture syndicates also have a track record for delivering top-tier returns.
Looking at recent returns, it appears some new power duos are emerging. On the East Coast, the standout couple is Union Square Venture Partners and Spark Capital, which have formed a rewarding alliance, co-investing in a number of fantastically successful companies, including social media juggernauts Twitter and Tumblr. The two were one of seven power pairs featured in the most recent issue of VCJ (Subscribers can see the full article here.)
Spark has the highest overlap with Union Square in its portfolio of any other firm, says Bijan Sabet, a Spark general partner. In addition to Twitter and Tumblr, other co-investments include Foursquare Labs, Boxee, Kik Interactive, Work Market and Skillshare. Altogether, the two firms have co-invested in 11 companies, according to Thomson Reuters.
The two firms work well together in part because they have a similar investing style and focus, Sabet says, seeking out early stage companies whose business models have a built-in network effect.
Spark and Union Square also have a history of agreeing on strategy, which has been helpful, Sabet says. In particular, consensus on how to deal with unusually fast-growth played a key role in the scaling of Twitter and Tumblr.
“In the early days of Twitter and Tumblr, our shared view was that we should be focusing on user adoption and scale rather than monetization,” Sabet says. “I think if we had conflicting views that would have been challenging for the company.”
Sabet says he believes most VCs would have taken a different tact and pushed the companies to capitalize on their tremendous networks. But for Spark and Union Square, the fact that the companies were able to operate pretty capital efficiently made it affordable to focus on even more massive growth and to delay concentrating on revenue generation.
Few could argue with the results. Yahoo, as has been reported everywhere, is buying Tumblr for $1.1 billion. As for Twitter, with a recent reported private valuation around $10 billion, few would argue that delaying a profit-generating strategy hurt its long-term value.