Dan Teran shares Gutter Capital’s challenge of closing its first fund

Gutter Capital, a New York venture capital firm, closed on $25 million in capital commitments for its first fund to invest in pre-seed and seed stage companies focused on affordability, economic mobility and climate change.

Founding partners Dan Teran and James Gettinger met while students at Johns Hopkins University. Prior to starting Gutter Capital, Teran started his first company, Managed by Q, which automated office management. He sold that business to WeWork in 2019 for $220 million and joined the company to lead global corporate development and ventures following the acquisition.

Meanwhile, Gettinger was initially involved in online gambling, winning multiple world competitions before developing a software-driven process to predict athlete performance and opponent behavior.

In 2017, they began investing some of Gettinger’s gambling winnings, and then later Teran’s Managed by Q proceeds, building a portfolio of over 100 angel investments, which included Bowery Farming, Electric.ai and Ribbon Homes.

Then they went out and raised external funds. We’ve covered the dry powder that venture capital firms are sitting on and also how difficult it is to raise funding in this economic environment. Though Teran and Gettinger were able to surpass their initial goal of $15 million, Teran was quite candid about their experience, which started at the end of 2021 and ended with them closing the fund earlier this year.

“It was way harder than venture capital as a founder,” Teran told TechCrunch. “I thought that having a successful exit behind me would be easier, so I was kind of surprised at how little credit you get for that.”

He explained that when pitching as a founder, you share the vision of the company and can show what you are building. With a venture capital firm, you are pitching on an investment thesis, what he called “a mystery bag of companies that you haven’t invested in yet.” They also had to prove that they could translate their angel investing experience into leading rounds.

“It’s harder for them to get excited about that,” Teran added. “One thing I hadn’t accounted for is everyone pitches the exact same thing when you’re raising a venture fund. Everyone says they help founders with recruiting, and while we think we do things differently, it’s really hard to make your case when they’ve heard the same thing a hundred times already.”

Gutter Capital now has the backing of individual investors, including Fred Wilson of Union Square Ventures, Hunter Walk and Satya Patel of Homebrew, Eileen Murray (former co-CEO of Bridgewater Group) and institutional investors Tiger Global Management, Bain Capital Ventures, FJ Labs and Kapor Center Investments.

Teran and Gettinger are investing initial $1.5 million checks in founders with focuses on software-as-a-service and marketplace businesses working in three areas: improving accessibility and affordability of healthcare, housing and education; technology that empowers individuals, entrepreneurs and small businesses to thrive; and reducing carbon emissions and preparing at-risk communities to cope with a changing climate.

They have already invested in 13 companies in the past year, including flood management startup Forerunner; tiny-home developer Den; The Climate Choice, a company working on carbon emissions; and Unit, a startup making it easier for workers to form labor unions.

The pair are also committed to having a diverse portfolio, which is composed of 38% women-led founders, 48% non-white founders and 15% Black or Latinx founders.

While it may seem like everyone was struggling to raise funding, Gutter Capital joins a handful of firms that also raised their first funds in the past six months. For example, Fiat Ventures, The Family Fund and New Fare Partners. If you look closely at these firms, it appears a trend is emerging in partners not only coming from unique backgrounds, but also investing in more niche areas.

When asked why founders should choose Gutter Capital to back them, Teran said that not a lot of people are investing at the pre-seed and seed stages, but even fewer are operators that raised venture capital and exited a business. In addition, Teran and Gettinger have Richard Hughes as an operating partner. He was a former employee of Teran’s at Managed by Q who has also previously led talent acquisition at Primary Venture Partners and Alma.

So far, the firm supported 46 of the 89 hires made by the Gutter Capital portfolio in 2022.

“As a result of having exited a business just a few years ago, we have a really great network of operators, other investors and vendors,” Teran added. “We really try to be a true partner to the founders. I noticed the biggest challenge was getting really good people to come and work for me when I was 24 years old. Richard and I are able to partner on recruiting key leadership roles and really help our founders amplify their reach to get top talent into the portfolio.”

Meanwhile, the firm has already begun raising for its second fund.

Dan Teran shares Gutter Capital’s challenge of closing its first fund by Christine Hall originally published on TechCrunch