A Decade of Investing: Bobby Goodlatte's Rise and Form Capital

Bobby Goodlatte has been an investor for approximately ten years, yet has reportedly generated substantial returns, reaching tens of millions of dollars. This success challenges the views of some established venture capitalists who initially expressed skepticism about the influx of new investors into the industry.

Early Insights and a Fortuitous Investment

Goodlatte recalls a prominent investor predicting that new angel investors would inevitably lose their capital, deeming their participation unwise. However, Goodlatte, recruited from college to be a product designer at Facebook, left after four years following the company’s initial public offering and defied those expectations. He expressed gratitude for not being dissuaded from pursuing investment opportunities.

His second investment was notably in Coinbase, marking an auspicious beginning to his investing journey. More recently, Goodlatte co-founded Form Capital with entrepreneur Josh Williams. This firm distinguishes itself by offering up to 40 hours of design assistance – encompassing areas like logo creation and packaging – alongside each investment.

Form Capital: A $12 Million Debut Fund

Goodlatte discussed the venture firm and its $12 million debut fund this week. The fund is primarily financed by Goodlatte himself, with Cendana Capital serving as a limited partner. He believes the greatest returns in the coming years will be generated by very small funds where the general partners demonstrate a significant financial commitment.

He also highlighted the importance of investing in other small funds to maintain a robust deal flow. Furthermore, Goodlatte shared his recent relocation to Miami, believing a significant “movement” is underway there.

From Facebook to Venture Capital

Early Career at Facebook

TC: You began as a designer on Facebook’s user growth team, collaborating with individuals like Chamath Palihapitiya. Your tenure of just four years, ending with the 2012 IPO, is noteworthy.

BG: While I considered remaining with Facebook longer, many colleagues have since achieved considerable success within the company. However, I was eager to begin my career as an investor. At the time, Facebook prohibited employees from engaging in angel investing.

I am glad I started when I did, as my second angel investment was in Coinbase. Had I stayed at Facebook longer, I might have missed that opportunity.

The Allure of Bitcoin

TC: You’ve previously mentioned your early interest in Bitcoin and following discussions others overlooked. What initially sparked this fascination?

BG: William Gibson famously stated, “The future is already here — it’s just not evenly distributed.” I see this reflected in pockets of innovation that exist around us. In 2012, the Bitcoin subreddit represented such a pocket, where enthusiasts were passionately discussing Bitcoin, a topic largely unknown outside that community.

This reminded me of the early days of Facebook, when college students were aware of a future that others struggled to comprehend.

Coinbase and the Power of Early Investment

Analyzing the Coinbase Return

TC: Could you comment on your returns from Coinbase, where you invested in the A, C, and E rounds? Is there any information you can share regarding the cash-on-cash return?

BG: Much of this information is already publicly available. The Series A cost basis was 20 cents, allowing for calculations based on that figure.

Startup investing involves both preparation and luck. While I anticipated Coinbase’s success, I didn’t fully foresee its growth to an $80 billion-plus company. I feel fortunate to have recognized its potential.

Navigating the Angel Investing Landscape

TC: There are now numerous avenues for entering VC, including AngelList syndicates and rolling funds. Did you utilize these, or did you initially fund investments from your personal resources before establishing Form Capital?

BG: I may be admitting something I shouldn’t, but early on, financial advisors cautioned me to allocate only a small percentage of my net worth to angel investing. I admittedly disregarded that advice. While it ultimately proved successful, it was a significant risk. I made 40 deals using my own funds, and was nearing the limit of my available capital.

I then invested through a small scout fund, which led to some exceptional deals and allowed me to invest at a larger scale. This experience ultimately paved the way for Form Capital. Ignoring conventional advice and investing a substantial portion of my personal wealth in seed-stage ventures proved fruitful, though I acknowledge the inherent risk.

Advice for Aspiring Angel Investors

Guidance for New Investors

TC: What advice would you offer someone transitioning from a company like Coinbase to angel investing? Should they go it alone, or leverage existing platforms?

BG: It depends on their risk tolerance and enjoyment of the work, as it can be demanding. Developing a substantial portfolio requires significant time and effort, which may not appeal to everyone with a recent exit. For those seeking to enter venture capital without a significant exit, I encourage them to pursue it. There’s ample opportunity for small-check investors to achieve substantial returns.

Collaboration in Venture Capital

TC: Has the level of collaboration changed since you began in 2012? Seed-size checks are increasing, suggesting a more competitive environment.

BG: There was a period of intense competition, and it may still feel that way for some deploying larger funds. However, I believe the current environment is the most collaborative yet. I personally invest in numerous small funds led by exceptionally talented managers.

Some funds have raised more capital than necessary, creating a situation where funds exceeding $80 million are often forced to lead investments, hindering collaboration.

Check Size and Ownership

If you aim to write a large check, say $1.5 million, and the founder can only offer a $150,000 allocation, that’s detrimental to a large seed fund. However, with a target check size of $250,000, a $150,000 allocation can still be economically viable.

TC: What is the range for your check sizes, and what ownership percentage do you typically target?

BG: Our checks range up to $500,000, and we aim for 3% ownership. Being a small fund allows for greater flexibility in structuring portfolios. We can adapt to smaller allocations or higher valuations as needed.

SPVs and Building Relationships

TC: Do you utilize special purpose vehicles (SPVs) to increase your stake in promising companies?

BG: My personal investment in Coinbase served as a model. By fostering a close relationship with the company, offering minor design assistance, and facilitating connections, I secured follow-on allocations. In the Series E round, I raised an SPV based on this established relationship.

We may continue to use SPVs or explore alternative vehicles for follow-on investments. The strategy remains consistent: invest early with a small check, commit significant capital through the fund, and cultivate a strong relationship to provide disproportionate value.

The Challenges of SPV Fundraising

TC: You mentioned pitching 50 parties for your Coinbase SPV and receiving only three commitments.

BG: In late 2018, the cryptocurrency market was struggling, and concerns about a broader market downturn were prevalent. Raising the SPV was incredibly difficult. Competition from other SPVs also played a role. Once the allocation was secured, the fundraising process had to move quickly.

The rapid shift in perception surrounding Coinbase over the past two years is remarkable. I commend the investors who backed us on that SPV, as they took a significant risk. Many have since expressed regret for not participating.

The Miami Movement

A Shift to Miami

TC: Having recently moved to Miami, do you believe you’re encountering more compelling deals than you would in the Bay Area?

BG: It certainly feels that way. I began noticing this trend in late November and decided to embrace the opportunity. I’m glad I made the move, as San Francisco remains a vital tech hub, but Miami offers a unique energy and a chance to contribute to something new.

Many have questioned the move, fearing I would miss out on opportunities. However, it has been an accelerant for my career and investing.

Form Capital is a natural fit for Miami, a city known for its design scene. Moreover, being one of the few funds based here allows us to capitalize on the momentum and receive support from local leaders.

Pictured above, left to right: Goodlatte with Coinbase co-founder Fred Ehrsam, who more recently co-founded the cryptocurrency investment firm Paradigm.