VC Peter Relan Launches New Incubators After Discord Success

Peter Relan: A Career of Incubation and Insight

While not widely recognized by the general public, Peter Relan boasts a substantial track record of success throughout his career. A graduate of Stanford University, with prior experience at both Hewlett-Packard and Oracle, Relan later served as the CTO of Webvan during the dot-com boom. More recently, he has become a prominent figure in the startup ecosystem, establishing three “low-volume, high-touch incubators” that have consistently yielded impressive results.

Early Success with OpenFeint

The inaugural cohort in 2007 featured Jason Citron, who was then developing OpenFeint, a social mobile gaming venture. Citron ultimately sold OpenFeint to Gree of Japan in 2011 for $104 million.

Relan, functioning as an operating partner, held a 50% stake in the company. When Citron promptly decided to launch a subsequent company, later known as Discord, he immediately sought Relan’s assistance in its development.

A Portfolio of Successful Ventures

Relan’s other incubator “graduates” include Crowdstar, a social gaming company acquired by Glu Mobile in 2016, and Agawi, an early game streaming platform that was sold to Google in 2015.

Having transitioned away from gaming, Relan is currently concentrating on addressing climate change, promoting equality, and exploring the “ethics of technology.” He recently shared his insights regarding his relationship with Citron, having served on Discord’s board until the previous year.

Relan also revealed that he is currently working on “two significant projects—one in AI and one in climate change,” suggesting further developments are on the horizon.

The YouWeb Accelerator: A Different Approach

TC: Your accelerator, YouWeb, emerged around the same period as Y Combinator, but its structure differed considerably.

PR: Each year, our approach involved partnering with a select group of entrepreneurs, providing them with a year-long engagement instead of the conventional three months, and fostering a collaborative creation process. Consequently, we did not manage a large portfolio of companies. Over a span of 15 years, we incubated approximately 30 companies.

Founder Acquisition and Early Funding

How did founders come to work with you?

Referrals were central to our process. For instance, I initially met Jason when he was 22 years old, as a roommate of my nephew, a Berkeley graduate. Being a Stanford alumnus myself, I consulted with colleagues at Stanford to identify potential founders. It was a deliberately understated approach; we weren’t aiming to create a massive application process.

We focused on identifying founders with specific inclinations, particularly those with strong technical and developer backgrounds, given my engineering expertise.

The Incubator's Financial Structure

Who else was involved, and how was the incubator funded – through your personal resources or external investors?

I initially funded the incubator with my own capital, but we subsequently assembled a network of investors for the founders. This network comprised approximately seven or eight executives and successful founders from companies like Yahoo, Google, Oracle, and Microsoft.

The initial funding totaled $2.5 million for the first cohort, supporting eight founders.

The Genesis of OpenFeint

Jason’s first venture – co-founded with Danielle Cassley, an EIR at YouWeb – was OpenFeint. How developed was the company at its inception?

Jason’s passion lies in gaming, and he initially expressed a desire to create something within that space. There was no specific idea, game, or product defined at the outset. OpenFeint, which began as a game called Aurora Feint – a visually appealing and well-received title – achieved moderate financial success.

However, the most compelling aspect of Aurora Feint was its underlying social platform, featuring leaderboards, achievements, and chat functionality. We subsequently extracted the social platform and decided to prioritize its development and scaling.

Relan’s Role and Responsibilities

What was your role in the company?

I served as executive chairman, while Jason held the position of co-founder and CEO. We operated as business partners, with Jason focusing on product development and me providing mentorship, guidance on financing, strategy, and business development.

Danielle was initially involved but later transitioned away. It was primarily Jason and myself working together. We secured a significant partnership with AT&T to pre-install OpenFeint on their mobile phones, among other initiatives. My primary objective was to be supportive.

Equity and the Y Combinator Model

Y Combinator typically takes a 7% stake for its initial investment. What percentage of OpenFeint did you own?

Our initial model involved co-creation, resulting in a 50/50 equity split. This proved highly beneficial for YouWeb when OpenFeint was sold, as we were equal partners with Jason and Danielle. In our subsequent work with Discord, we adopted a more YC-like approach, aiming to reduce my workload and broaden our focus beyond gaming.

Discord: A Repeat Success

The fact that Jason returned to you with Discord speaks volumes about your relationship. It’s also notable that a 26-year-old who had recently made a fortune would immediately re-engage in work.

I recall receiving a simple email from him in late October or November 2011, stating, “I’m back.” I responded with, “Great.”

The process mirrored the OpenFeint experience, starting with a game that achieved moderate success. However, the chat platform features proved exceptionally popular, leading Jason to extract and launch it as Discord. This time, the execution was significantly more successful, with Discord now boasting over 300 million users.

Discord’s Valuation and Series A Funding

Discord is now reportedly valued at $15 billion. How did its Series A round materialize? I’ve heard that some firms – perhaps General Catalyst or Accel – missed out on that opportunity. Is that accurate?

The initial round for Discord was unique. It wasn’t a priced round; rather, it involved investors primarily investing in Jason and, to some extent, in our collaborative relationship. It was a vote of confidence in our past success and Jason’s potential for future achievements.

The round included investments from Accel, General Catalyst, IDG, and Time Warner, with each firm contributing approximately $250,000.

The pivotal moment came at TechCrunch Disrupt, where Jason’s presentation style and company resonated with the audience. Mitch Lasky of Benchmark, who hadn’t participated in the initial checks, recognized the potential and swiftly offered a term sheet. It was a remarkably fast process, with Benchmark’s offer effectively preempting further consideration from other firms.

It wasn’t a case of others being rejected; rather, Benchmark acted decisively and secured the deal before others had fully explored the opportunity.