Welcome to our Member Spotlight series where we give a profile overview of our many diverse members. For this deep dive, we spoke to Liam Donohue, Co-Founder and Managing Partner of .406 Ventures, to learn more about his firm.
Tell us about your firm. What makes it different?
When we founded .406 Ventures, we set out to build a firm that had a unique combination of characteristics, including:
Operational centricity – each of our team members have operational experience, which informs our appreciation for the grit it takes to build great companies as well as our collective instinct to be as helpful as possible to the entrepreneurs we back, and even to those we don’t.
Early-stage focus – we are focused on Series A investing, which for us means companies that have some early evidence of product-market fit, but that still have a lot of building to do. We find that this is the stage where we can add the most value and thus generate the strongest returns for our LPs.
Right-sized funds – our four core funds, which range from $170M to $300M, are big enough to matter, but not so big that we feel pressure to over capitalize companies or move to later stage investing.
Focused on domains we know well – for over 15 years, we have targeted our investments on enterprise-focused companies in spaces we know really well: healthcare, cybersecurity, and data / cloud. Even within each of these verticals, we are careful to only invest in sub-sectors where we have relevant networks and have developed expertise. This helps us make strong bets and, again, allows us to be as helpful as possible to our companies.
East Coast focused – while about 1/3 of our portfolio is based outside of the Northeast, we proudly concentrate our efforts on the East Coast opportunities.
Nearly 16 years in, we believe these founding tenants, which are not uncommon individually, continue to be quite unique when pulled together as an ensemble.
It’s also worth noting that while our goal has always been to hire the best people, we have organically built an investment team that is mostly female – differentiating us (sadly) from most firms in the industry.
Where did your firm’s name come from?
As anyone who has started an investment firm in the past 20 years knows, finding a good name is a major challenge. In our case, we wanted a name that fit four criteria: 1) Boston connection; 2) metaphor for investing; 3) would end up near the top in any alphabetical listing; and 4) a URL available for <$10. Thankfully, our founding Associate (Kara Sweeney) pulled together an admirable set of options, of which .406 Ventures was the clear winner as it hit all the criteria: 1) Boston connection: .406 was legendary Boston Red Sox slugger Ted Williams’ batting average in 1941 – the highest in modern baseball; 2) Investing metaphor: Ted wrote a book entitled “The Science of Hitting,” the key theme of which is that a batter should not swing at every ball in the strike zone, rather only those in the individual batter’s ‘sweet spot.’ 3) High in alphabetical order: turns out that punctuation symbols precede letters and numbers in alphabetical order; 4) URL cost us $7.95! What we didn’t consider is that given certain rivalries and recent World Series, our name has not made raising capital from LPs in New York City, Saint Louis or Baltimore all that easy!
What defines your portfolio?
Our portfolio is full of companies founded by smart and passionate entrepreneurs who are hell-bent on solving big and important problems for enterprise buyers. For better or worse, we are proud that our portfolio companies are long on substance, even if they are sometimes short on sizzle. Like any VC, we don’t win every bet we make, but we want every bet in the portfolio to be a smart one. In addition, in our more recent funds, many of our companies are started and run by entrepreneurs who we’ve backed at least once before.
How is the firm different today than when you first started?
In many ways, very little about .406 has changed in the past 16 years. Four of our five current partners (Liam, Maria, Graham and Greg) have been together since Fund I. We have the same fund CFO (So-June), the same Office Manager (Kelci) and even the same office space (though we did add a speakeasy after Fund III). We still pursue the same early-stage strategy in the same three sectors (healthcare, data/cloud and cybersecurity). So, in many ways, we’re kind of boring. On the other hand, so much has changed! We have added team members (Payal, Kathryn, Kevin, Eliza and Joey) who we now cannot imagine living without. We no longer have to explain who we are to other GPs and entrepreneurs. We get to experience, instead of speculating about, the franchise value of having strong networks of executives and portfolio companies that know us and want to work with us. Given the position we are in now, we are very excited about what the next 16 years will bring.
Why is your firm a part of NVCA?
We’ve been active members of the NVCA for all of our 16 years in business. More than anything, we value the NVCA’s thought leadership and policy advocacy efforts. There is rarely an issue that hits our radar about which the NVCA hasn’t already done the analysis and developed a thoughtful plan. We also find that some of the NVCA’s offerings (e.g., standard form documents) are hugely valuable to .406 as a firm and the entire ‘new economy’ ecosystem.
Tell us about the current VC landscape in your geography/region.
Ever since our founding, we have believed that early-stage venture in the Northeast is the best investment opportunity in the world. We have all the raw ingredients to build great companies here in Boston: world class universities, incredible executive talent, large and demanding customers, exceptional infrastructure, strong pool of proven entrepreneurs and a great quality of life. Despite this, there are only a few local early-stage venture investors. In fact, while there has been a proliferation of seed stage investors, incubators and accelerators as well as constant flow of Series B+ interest from West Coast firms, there are actually fewer early stage (Series A) technology funds in Boston today than when we started .406 in 2005. We couldn’t be more excited about this dynamic.
What’s ahead for your firm in 2021?
We won’t be raising .406 Fund V until 2022, so 2021 is all about making investments and working with our portfolio. It’s a great time to be investing in our three areas of focus: digital health, data/cloud and cybersecurity, so we’re looking forward to a great year.
Describe your firm’s culture in 5 words or less.
- Building important disruptive companies together.
- Solving big problems together.
- By entrepreneurs for entrepreneurs.
- Focused on earning first call.
- Best looking founder team ever. ?
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Sabrina serves as the Vice President of Communications and Marketing at the National Venture Capital Association, where she leads the communications strategy to strengthen the voice of the U.S. venture capital and startup community. As a leader with 20+ years of strategic communications experience, Sabrina is instrumental in amplifying NVCA voice on pro-business policies that help create American jobs and support America’s entrepreneurial ecosystem.