645 Ventures, Which Brought A Growth Playbook To Early Stage VC, Is Moving Into Growth Investments

When Aaron Holiday and Nnamdi Okike set out to start VC firm 645 Ventures in 2014, they convinced a handful of investors to gamble on their experiment to make data-driven investments in a place where notoriously little data is available: seed-stage startups. Three funds in, with $500 million in managed assets, they appear to have the makings of a working model.

Now, the duo is leveling up with a new fund that will apply their approach to the same place where it originated: growth investments. 645 Ventures announced Thursday that it had raised two new funds: a $195 million early-stage fund, the firm’s fourth, and a new $153 million vehicle to invest in mature, growth-stage startups.

“We are in a position to do what we’ve done in the earlier funds at a much larger scale,” Holiday says, noting that 645 plans to write checks to startups ranging from $1 million to $15 million. The firm plans to make about 30 investments from the early-stage fund and a dozen growth deals, he says. But despite the new vehicle, 645’s founders maintain they will continue to focus the lion’s share of their time on early-stage investing. In fact, 80% of the growth fund will go into follow-on checks for the best companies the firm first backed through its early-stage fund, Holiday says.

“Our belief is that there’s a lot more science to this.”

This puts 645 at a unique crossroads in VC. On one end, traditionally growth-oriented firms like Insight Partners and Tiger Global have taken their data-driven approach upstream. Even as the VC market slowed down, those two firms were the most active early-stage investors in the first half of 2022, per Crunchbase data. On the other, the majority of longstanding early-stage VCs do not put as much emphasis on data as 645. “Most early stage VCs believe it’s all about the art: You know when you see it, it’s very much a gut feeling,” Okike says.

In the middle of the spectrum, 645 hopes it can attract startups willing to adopt the growth playbook earlier than usual, but with a more hands-on investor than the typical growth fund. So far, it has attracted a self-selecting group of founders, Okike says: those big on preparation over improvisation. For example, the firm invested in Squire, a startup valued at $750 million which sells software to barbershops, after crunching the numbers and sitting down with the founders to develop a structured strategy about how to diversify the company’s revenue stream. “Our belief is that there’s a lot more science to this,” Okike says.

That belief stems from the cofounders’ experiences prior to starting the firm. Holiday began his career as a software engineer designing algorithms for a key stock index trading team at Goldman Sachs, while Okike was previously a principal at Insight. To convince LPs to take a bet that their past work could be applied upstream, they created software to track the numbers available at the seed stage. Whereas growth-stage companies have years of data about their revenue and customer growth, many seed startups have just begun to make money. Instead, 645 relied upon oft-neglected metrics such as website traffic.

“We believe that in the future it’s better to be oversized at the seed stage… than to be undersized at the growth stage.”

Investments in the first fund have multiplied six times in value in eight years, while the second fund is currently performing at a 3x multiple. Holiday says the second fund is growing faster than its predecessor (fund returns generally improve over time if enough startups mature, but may be damaged if too many companies fold). Highlights from the portfolio include policy tracking software company FiscalNote, which went public in August, and Iterable, an email marketing company valued at $2 billion. In both cases, 645 invested at the seed round.

The main reason the firm decided to raise a growth-stage fund at all, Okike says, is because it was running out of money to make follow-on investments into the best seed companies they’d already invested in. LPs that were once skeptical of applying the growth approach to the early stage, were easy to convince this time around when the partners proposed applying it back to growth. “They see this as our core competency,” Okike says. But asked whether the new fund plants the flag for 645 to become a multistage firm, Holiday adamantly says no.

“We believe that in the future it’s better to be oversized at the seed stage—having a lot of capital, and then piling it into the very best ones—than to be undersized at the growth stage,” he says. “We’d rather help early-stage startups become growth-stage businesses than us trying to become a growth-oriented fund.”