Boston’s Newest Investment Firm Wants To Disrupt Venture Capital

A former North Bridge Venture Partners investor is launching a new $100 million venture capital fund with CEOs of some of Boston’s most well-known tech companies, including Wayfair, Rapid7, TripAdvisor and DraftKings.

After spending nearly two decades as a North Bridge investor, Jamie Goldstein said he launched Pillar with the idea of upending the traditional venture capital structure to make the relationship between founders and investors more equitable and transparent.

To that end, Pillar will purchase shares of common stock in its portfolio companies, as opposed to preferred stock, a class of stock that is ubiquitous in startup investing. Preferred stock often includes clauses like anti-dilution rules that tend to favor venture capitalists over the businesses and entrepreneurs they’re investing in.

The Boston-based firm’s launch is part of a broader “founder-friendly” shift among investment firms to attract founders, as more entrepreneurs weigh the costs of ceding control over their companies to venture capitalists intent on making big returns.

Pillar’s common stock-only model is likely to attract criticism, Goldstein said, especially among investors who have long operated on the notion that they deserve to have some protections.

“Some people will think this is just a gimmick, that we’re doing this just to get deal flow,” Goldstein said in an interview. “We started from a more noble place, which is that alignment (among investors and entrepreneurs) is going to result in more value.”

Much of Pillar’s first fund has already been raised, and Goldstein said he expects to close the full $100 million by the end of the year.

Pillar’s founding team, which has contributed to the $100 million fund, include 17 CEOs of high-profile Boston-area tech firms. Among them: Niraj Shah, CEO of e-commerce firm Wayfair (NYSE: W); Corey Thomas, CEO of cybersecurity firm Rapid7 (Nasdaq: RPD); Steve Kaufer, CEO of online travel giant TripAdvisor (Nasdaq: TRIP); Ellen Rubin, CEO of enterprise storage network firm ClearSky Data; and Jason Robins, CEO of online fantasy football startup DraftKings.

When he was at North Bridge, Goldstein previously led investments in Boston-area companies attracted large amounts of venture capital, including Waltham-based data virtualization firm Actifio, which has raised more than $200 million in venture funding.

He said Pillar aims to make first-round investments in companies in the areas of big data, machine learning, artificial intelligence, health care and information technology, with a preference toward founders who run their own businesses.

Under the Pillar model, investors, founders and employees all have the same type of common stock ownership, though each party may own different amounts of the company.

“I wanted to change the nature of that relationship to one that’s totally transparent and trusting,” Goldstein said.

Christian Catalini, assistant professor at MIT’s Sloan School of Management, said common stock favors founders, whereas preferred stock offers numerous additional rights that can help investors influence of direction of the startup and recover a part of their capital if things don’t go well.

Purchasing shares of common stock is unusual in venture capital, and with this model, it appears that Pillar is trying to attract entrepreneurs who want to retain more control over their companies, Catalini said. But he cautioned that common stock is not the only clause in an equity contract that matters.

“For an equity agreement, the devil tends to be in the details, so the overall set of provisions (board seats, etc.) will ultimately define how much leverage the entrepreneurs versus the investors have over time,” Catalini said in an email.

Ash Ashutosh, CEO of Actifio, said that under Pillar’s model, the business interests of the investor and the founder are aligned, which is “critical” to any new company’s success.

“It sets the course for constructive, collaborative working relationships and keeps all parties’ best interests in check,” said Ashutosh, another member of Pillar’s founding team, in a statement.

Pillar will also offer “operational support” for its portfolio companies, similar to the type pioneered by Silicon Valley venture firm Andreessen Horowitz, which offers support in the areas of executive recruiting, marketing, technology and business development.

Source: Boston Business Journal, Sara Castellanos
Photo: After spending nearly two decades as a North Bridge investor, Jamie Goldstein said he launched Pillar with the idea of upending the traditional venture capital structure to make the relationship between founders and investors more equitable and transparent. (Screenshot)