8-bit Capital Closes $40 Million Fund

A New Venture Fund: 8-Bit Capital Launches

Jonathan Abrams and Kent Lindstrom have a long history of collaboration. Lindstrom previously served as an advisor and investor for Friendster, the social networking platform established by Abrams. He also held the position of COO at Nuzzel, a social news aggregator founded by Abrams, which was acquired by Scroll in 2019. Subsequently, Scroll was sold to Twitter, leading to the closure of Nuzzel in May.

Given their consistent activity as angel investors and the continued availability of capital for startups, it was a natural progression for them to establish a formal seed-stage fund with external investors. This decision led to a collaborative investment strategy.

Introducing 8-Bit Capital

From this collaboration, 8-Bit Capital was created, a name inspired by the era when computers had limited data storage capacity – a maximum of 8 bits per data block. This resulted in the distinctive, pixelated graphics fondly remembered by those who grew up with Atari consoles. The duo has now officially announced their inaugural fund, totaling $40 million.

This fund was raised from a diverse group of prominent VCs, entrepreneurs, and institutional investors.

Earlier discussions with Abrams revealed the identities of some backers, which he requested remain confidential to avoid an influx of funding requests. The conversation also explored their approach to navigating the highly competitive venture capital landscape and their focus – or lack thereof – on social platforms, considering their extensive experience.

Why Venture Capital Now?

TC: What prompted the decision to dedicate yourselves to VC on a full-time basis at this moment?

JA: For a considerable time, we’ve been assisting other entrepreneurs, and consistently, they’ve expressed appreciation for the guidance we’ve provided. This may be due to the perceived overestimation of the “value add” offered by venture capital firms, or simply because Kent and I possess a natural aptitude for it. Therefore, despite the abundance of investors, we believed it was a logical step to formalize our efforts.

Angel Investing Successes

What are some of your most notable successful investments as angel investors?

I would assert that the most promising companies have yet to realize a full exit. A unique aspect of angel investing and venture capital is that early exits can be positive, but the truly significant successes often require substantial time to materialize. I invested in HelloSign, the e-signature company, which was acquired by Dropbox in 2019 for $230 million in cash.

Furthermore, I was an investor in SlideShare, the content sharing platform, which LinkedIn acquired in 2012 for $119 million in cash and stock. These were both profitable ventures. However, investments in companies like Instacart, Front, and AngelList are still ongoing and demonstrate considerable potential for future profitability.

Patience is essential. Companies achieving valuations in the tens of billions of dollars often require years of dedicated effort from their founders.

Social Media Investment Strategy

Given your pioneering work in social media with Friendster and Nuzzel, and the current resurgence of social platforms, how interested are you in investing in this area?

We remain open to opportunities, but it isn’t our primary focus at present. This is largely due to the current landscape. We frequently receive pitches for new social media ventures, but we are still awaiting a truly groundbreaking and innovative concept. Many proposals simply state an intention to surpass Facebook, without a clear path to achieve this.

Our investment focus is on software. We are not pursuing investments in areas like biotechnology, mattresses, coffee, or space exploration. We are passionate about software solutions that create novel connections between individuals and businesses.

Connecting with Founders

How can founders best reach out to you? Is a warm introduction necessary?

Introductions are certainly valuable. We appreciate seeing an entrepreneur who is capable of building a network. If no one on a company’s founding team can secure introductions to investors, how will they obtain introductions to customers and build a strong team?

However, I serve on the board of Girls in Tech, and Kent and I are deeply committed to diversity. We recognize that requiring an introduction can hinder efforts to improve diversity within an industry that urgently needs it. Therefore, I will consider any cold email I receive. The challenge is the sheer volume of cold emails, many of which are poorly constructed.

They are often lengthy and lack essential information. While we would likely read a cold email, the ones we receive are generally not compelling.

Most of the companies we’ve invested in have been either entrepreneurs we already knew or referrals. We prefer to receive deal flow directly from entrepreneurs, and we typically avoid deals presented to us by other VCs.

Why Direct Deal Flow?

Is this because other VCs are likely sending the same deal to multiple firms simultaneously?

That is one factor. There’s also the issue of adverse selection – if a VC is widely sharing a deal, it may indicate they chose not to allocate funds to it themselves, suggesting a potential problem. Timing is also crucial. We aim to identify companies at a very early stage, ideally before they are widely known to other VCs.