Investment Manifesto

Bread's Grain

Bread is a seed-stage investment team of five, built on the promise of bringing better businesses into the world. We're hands-on operators. We spent the past two years supporting our unique pipeline of founders through our Agency. We only invest in industries with potential for foundational change through technology investment and founders who find magic in the mundane.

The Landscape

After the 2021-2023 correction, valuations have rationalized. Emergent cross-sector technologies in AI and computing are re-crafting enterprise, consumer, and climate markets simultaneously. Industry specific funds will swing and miss because impacts of emergent technology are variant and unexpected.

Over this period, the Bread team has been consulting with founders, helping the bring their businesses to market, mostly in an effort to help founders raise their A rounds.

Our experience as operators and feedback we've received from founders over the past two years is the basis for our decision to become capital providers.

Here's what we've learned:

Seed stage remains a proven asset class

The reset is yielding a less busy and confusing pre-seed landscape.

Investing at pre-seed is an asset class that works regardless of cyclical trends and enables positive returns on reasonable outcomes.

The bar for raising later rounds is higher

Most investors hibernated over the past two years to endure the low-growth economic environment and shake out of under-performing funds[1].

As a result, series-A conversions have decreased drastically for non "AI first" companies—we're seeing numbers ranging from 5-10%. We think this will increase in the next year but not without a revision to the definition of a fund-able series-A business.

Why pre-seed founders fail to get to market

Through our work with founders over the past two years, we've seen great ones struggle and they are typically:

Hyper technical people over building their product
Hyper technical people that don't really understand their customers
Non-technical people who struggle to make technology investments
Non-technical people who are struggling to scale their operation
Technical / Non-technical people with no knack for building a reproducible sales motion
Opportunistic people that just want to do something cool

It's often not a deficiency in ability, but a tendency to operate on default settings. And this is ok. But it results in overcorrection. The mistakes we see are:

Hiring too senior a team at an early stage — these are costly and the work is often too tactical for their liking
Avoiding or delegating speaking to customers — this is a founder's job
Lack of ROI definition for technology investments — tech investment needs explicit tie to revenue or cost reduction
Averting significant changes to pricing / rev model — pricing can unlock scale and clarify an ICP!
Chasing newer, cooler, opportunities rather than core business — you will always be a hype machine
Under investing in brand identity and market positioning
Overspending on frivolous, low-impact projects
An inability to hire in disciplines they lack familiarity in

The lack in diligence

Most seed-stage firms can't afford to go deep enough to truly de-risk an investment. It's a function of time, not ability. And so a market study, a handful of founder meetings, and thin pipeline reviews are what, for the most part, create their picture for investment. Based on what we've seen, most investors focus on two things:

Belief in this market
Belief in the founders

... where's the assessment on execution?

Seed investments are always going to be investments in people. But personality, while a valid assessment for one's ability to sell, isn't necessarily emblematic of one's ability to execute.

Good personalities attract opportunity. Good operators turn opportunities into enduring businesses.

An AI spread

We've been on ground floor not only witnessing how LLMs are reshaping every industry, but actually helping founders build these products.

Less technical GPs are forced to swing for the fences with all-in AI strategies. But the "AI first" market is saturated, filled with chat-bots and crappy content generators with no moats, flimsy ARR, and no clarity for LPs on exit potential.

This is gambling. Not investment.

Opportunity

Valuations are more reasonable than they've been in a decade, it's a great time to invest—this is clear. Capitalizing on this is another matter. We have an opportunity to:

Invest in boring magic

We see opportunity in products built for industries that have been under invested in, or historically resistant to technological change. These are products that have large impacts on customers experiences, but low visibility as fixable problems.

We call these types of products boring magic.

With the advent of LLMs and increased commodification of software development. Innovations in software are going to be innovations in process best developed by more experienced individuals with strong opinions on how to reshape their industry.

Examples of industries we have been exploring lately include:

Death
Lawn care
Specialty insurance
Non-profit finance

These are extraordinarily large industries with virtually non-existent technology stacks. Many of the processes and tools in these spaces have not benefited from the singular progress of technology over the past 5 years. They’re historically resistant to change. because the leaders in these spaces rely on locality, relationships, or engrained industry processes. And while that makes them challenging markets, founders who win in these spaces, typically win big.

We also keep a close eye on industries we’ve operated in before:

Dev tools
Private Equity
Healthcare
Proptech

Leverage a pre-calibrated team

By any functional measure, a team of five general partners shouldn't be considered a big team.

But instead, you're concerned. You have questions:

How will we stay motivated splitting the management fee five ways?
How will we ever come to a decision?
Will we all even get along?
What do you all do?

These are questions we've been answering for fifteen years[2]. Our size is our superpower. Our communication, near telepathic and buoyed by deep admiration and respect for each other.

Management fee splitting— We don't think fees should be motivation for operating a fund. Investment outcomes should be the driving factor. We don't think founders should be the only people eating ramen to earn their keep. But let's be clear, $250k a year is not ramen territory. We consider ourselves lucky that we can be paid to do what we love every day.

Decision making— We've been operating as a unit for fifteen years. Making decisions in the end is about curiosity, open discussion, candor, and trust. These are core elements of our relationship. That being said, decisions are better made when heuristics are involved. We use scorecards for evaluation, we document heavily, and we write comprehensive memos. Investments are voted on and passed by majority, but we aim for consensus.

Getting along— If you ask any business owner, in the end, bad teams are often the source of bad outcomes. Finding people with an irrational attachment to the problem, strong communication skills, deep technical knowledge, and an approach that aligns with core values is an extreme challenge. We've found these traits in each other. So when you're investing in Bread, you're joining a pre-calibrated team.

Roles— At a high level, a fund’s size and core skill-sets are their rate limiters for diligence and founder support. A team of founders with design, engineering, hiring, sales, and investment backgrounds can support a founder in every facet of their business.

The resulting process is atypical of other firms at this stage.

De-risk founders through operational diligence

Determining which founders have what it takes should be a robust evaluation process, focused on theory and execution.

Early evaluations are evaluations in character and in execution. It requires a team of diverse operators to properly evaluate a team's strengths and weaknesses.

To optimize for efficiency, deeper diligence should be segmented in phases and involve functional interaction with founders. These interactions reveal how founders actually work, where most VCs are only exposed to how they present.

Strategic Diligence:

Pitch meetings Evaluating the founders ability to communicate their vision, their values, and how they perceive their market.
Market research Does the market fit our thesis? Is their room for fundamental change?
Founder research Are they humble? Are focused on the right things?
Product research Does is work? Is the approach validated by our market understanding?

Operational Diligence:

Tech assessment 5 day sprint with development team to tackle underlying architectural challenges (Ben)
Growth assessment 5 day go-to-market session to revamp product marketing and analytics tooling (Brian)
Brand assessment 5 day brand workshop to understand the customer, define a brand message and design a more robust brand identity (Rob)

Special Diligence:

10 day special project sprint (Ben, Brian, Rob) Work directly with their team to design or build a tool for their market or internal operations

Meet founders' demand for operational support

Most founders haven't run a business before. They know they don't know things. The best ones are eager to learn and shamelessly ask for support—this holds especially true for technical founders.

We’ve spent the past two years successfully providing the kind of support founders need:

Getting to profitability early, reduce pressures to raise subsequent rounds of capital
Hiring team members in areas they’re not experts in
Avoiding critical stack choices they slow pace of development
Achieving higher brand value through considered brand design

What’s more is that, we've been asked on multiple occasions, before becoming a venture firm to join boards, or invest directly.

Profit driven investment

We’re obsessive about profitability in an effort to reduce the amount of rounds a founder needs to raise. We want to minimize dilution to the greatest extent possible.

Increase series-A conversion rates

Over the past two years, founders have had to readjust their expectations for follow-on investment. Their peers have struggled.

Through our work with them, we've been able to help 80% of the founders get follow-on capital.

We don't expect 80% to be a benchmark, it's a high bar. But there's no doubt that direct operational support drives this number up from the steep decline we've seen otherwise.

Gain inside access, outside of board meetings

Tactical support leads to more deals won, and voluntary board seats.

Being a founder is a lonely journey. Investors capable of providing thought partnership turns strategic participation from a requirement, to a default setting.

In speaking with our network about past investment experience, almost all of them shared their unease around asking investors for help. They're concerned about exposing uncertainty or poor performance. Information provided at board meetings ends up sugar coated and it creates an environment laden with disillusionment, rather than support.

Investors who can provide direct operational support make oversharing the default.

We've seen this dynamic be most impactful when a founder feels compelled to pivot.

Momentum can force founders down a path of mediocrity, simply because they're too nervous about losing investor confidence through a drastic shift in direction.

Investors should be part of those decisions, rather than benevolent check writers.

Not only should early stage investors be part of those discussions, but they should be helping founders define their metrics for performance.

Redefine venture as a service at the seed-stage

At its core, a venture fund is a services business.

We exist to give our LPs access to generational founders and to help those founders avoid common pitfalls at the early stages of their business.

Good service providers:

Put their clients before everything
They build tooling to automate repetitive functions
Build products to better service their clients
Operate transparently by default
Are sticklers about good cashflows
Recognize their value is in their brand
Know their brand is a function of their people

Funds that fail, are funds that don't understand this at a fundamental level.

The operation

Bread's GP consists of 5 serial founders:

Rob Grazioli - Designer, Engineer, Sales Leader, Angel Investor
Brian Weinreich - Engineer, and Head of Product
Ben Redfield - Engineer, and Head of R&D, Angel Investor
Steve Vondeak - General Counsel, and Chief of Staff, Angel Investor
Trevor Thomas-Uribe - Analyst, Seed Stage Investor, Angel Investor

Together we've helped bring almost 200 products to market. Including a few of our own. One of which reached a $1.1B valuation in 2021.

We differ from most funds in 3 core areas:

Sourcing
Diligence
Operational Support

Sourcing good deals and getting early access

Sourcing is a marketing effort.

Classical channels are built through networking:

VC introductions
Their portfolio of founders
Panel / event attendance

Some are built through an online presence to source through organic web traffic:

Blogs
Youtube
Press

Our VC & founder network

Trevor, an active investor for 12 years, is a Kauffman fellow with deep connections in SF and rural CA
Steve is an Angel investor with deep routes in upstate New York and Canada
Rob is an emerging Angel investor and has investment connections in NYC
Ben and Brian are emerging Angel investors with roots in the Hudson Valley
Rob, Ben, and Brian also represent the technical core of Bread and bring in our network of other highly technical founders

It’s important to note that we don't subscribe to the idea that talent only exists in The Bay. Our geographic presence gives us access to deals in both well established and smaller markets. We started our first two businesses in Syracuse, New York. Traditional locations are great sources of deal flow for us, but we find our presence in smaller markets—rural CA, Rural NY, and Canada (developing)—a key part of our ability to find unique founders and win deals.

Our Agency Pipeline

The most attractive deals we've seen have come through our Agency pipeline.

Our agency brings us looks at 500 founders annually.

These founders:

View us as thought-partners
Have often seen past success
Are often pre-product
Some are actively raising
Most aren't raising
Most are second or third-time founders
They're looking to move quickly

These looks are primarily driven by referrals from past engagements with founders. They're asking us to be involved. If we're interested, the conversation goes from them paying for support, to us writing them a check.

Our Brand of Support

Most founders come to us for help solving the most pressing technical challenge they are encountering as they plan to launch a new business. The inputs are usually a sharp, thoughtful founding team, some code cobbled together, and a unique vision of the world; the desired output is a product that works, produces efficient revenue, and has the potential to scale.

We indulge; imagine ourselves as the customer, and hope we are surprised and delighted by the vision the founders create. But behind every good story is a code repository, a user journey, or a growth tactic. Not only do to embed ourselves temporarily with a team to evaluate their ability to execute on a good story, but if they've convinced, we leverage our fifteen years founder experience to get them to market faster and more prepared than their peers.

Our team has broad and deep skills in design, product architecture, development, growth, legal, and investing. We bring all of these perspectives to bear to collaboratively identify an optimal path toward their first $1M in revenue.

In all cases, this usually entails:

a. Determining how best to build, approach, stack, tools, interface, brand, execution plan etc b. Determining whether or not the vision makes sense, and c. Creating a measurement system within their product to collect data, test against it, and measure traction.

Go-to-market

Getting to market is an alluring catch all. The reality is, being in market isn't the same for every market. Ultimately, we've found that early market success is typically a function of:

Moving really fast
Focusing on the right thing
Ensuring the basics are in place to unlock early scale
Putting pricing in front of users
Pivoting when something isn't working

Design

We believe that great companies build great brands from day 1. Which suggests it's intentional.

Brands are accretive to enterprise value— Making it easier to raise money for a business, and sell product to a company with clear communication, values, and identity.

They build team strength— Great brands can be powerful draws to talent, and provide resiliency for teams in tough times.

They are product sherpas— Acting as organizational philosophers, informing product, promoting healthy behaviors, and creating sticky experiences with customers and investors.

Engineering

Great architecture and development are essential to every great software business.

Great architecture can be measured in three ways:

Readability
Speed
Margins

There are ways to build for testing, and ways to build for scale. There are best in class data structures and tools, and data structures that are best for your business. There are secure and insecure ways of handling information. There are technical design choices that have proven success by sector, and design choices have been proven failures in this era. Finally, there are ways to measure product, and its effectiveness against KPIs---we help founders put good practices in place from the start to build enduring products, search for product market fit, and pass the high hurdles of series-A.

Hiring

Perhaps more than anything, we are team builders. We've experiences the joy and power of a great team. We've made bad hires, and we've made great ones. Every portfolio company entering our portfolio inherits our playbook for hiring world-class designers, engineers, growth leaders, and product minds.

Network

Finally, we help with people. We have a strong network of investors we work with and can help founders find fits when the time is right. We also have a strong network of technical designers, developers, and CTOs and can help teams grow responsibly when they are ready. Finally, we keep things fun, and try to have interesting events with portfolio founders for cross pollination, and hanging--with no white boards.

Results

When didn't set out two years ago to create an awesome fund. Rather we set out to help build things that matter with people that matter to us. The output of that random walk has been discovering an ability to help companies make the conversion from pre-seed to series-A within 18 months with about 80% efficiency, and often with substantial value creation in the process. Tracking the companies we have worked with over the past two years, and assuming we had invested $1,000,000 in each when we first met, we would have already returned a $50M fund in two years.

Why is this Compelling Today

We think Boring Magic fits the needs of today's market, because pre-seed needs a new approach, valuations are down, and underwriting now requires a technical bias.

We believe this vintage will represent the process of building new products to automate large boring industries. This process is different from the future of work or enterprise SAAS theses from previous cycles that drove remote work, gig work, and vertical SAAS implementations, in that the opportunity spans enterprise and consumer, and the technology is significantly more complex. As underlying models are often open-source or easily available, it requires more to architect great products, and to differentiate them in the quest for product market fit, with tech that is non-proprietary. Top down "finance only" investment teams focusing on Team, Market, Product, and Execution plan, are necessary but not sufficient for pre-seed investment. They must also be able to build, test, possess a fluency in data, and design. We believe we are leaders in this cross-functional future. Being a great founder, with a great idea, and reasonable technical chops is no longer enough. Today, great founders need and enlist help earlier on to maximize product traction ahead of series-A. They need not spend a year in an incubator, or venture studio to get this sort of support—they should get it by default from their partners.

Finally, this is a great market to invest. The market has corrected, the ecosystem has a renewed focus on building real profitable businesses, and some of the strange agency costs of unconscionably high valuations have subsided. To add we are in the early innings of functional AI (from chips to interfaces), a transformation of the energy sector, on-chain rationalization, and new marketplaces as vertical influencing trends take on a shifting world. Generally, the whole field is in play, which feels new and exciting.

Why Us, Why Now

We have shown up for each other for over a decade. We commit. We will continue do so for another and we will do the same for our founders. We've worked together for so long our communication is near telepathic. We think that starting a fund without already finding your tribe makes no sense. We are freed from the team risk component of firm management, and the risk of adding new GPs through a stable team and balanced skill sets that can scale.

We are completely different puzzle pieces that provide a diversity of thought for our partnership, and our portfolio companies.

We love each other. We are a values-aligned, tribe that stuck together for over a decade through difficult moments and always remained close. We value treating others as you'd like to be treated, being honest (even when it's hard), radical transparency to an extent that does not conflict with our other values, and following through on promises. We live these values with each other, our partners, and founders. Even when we worked on different things, we sought to work together and still did side projects as a unit. We can't imagine being fulfilled working with a different squad. We are doing this for each other, as much we are doing this for our investors and founders. We love this game, and we love playing on this team.

Why "Bread"?

The name originally came to us through a book, Not for Bread Alone, a Business Ethos, a Management Ethic by the founder of Panasonic, Konosuke Matsushita, which explains how building a great businesses can mean (albeit counterintuitively) focusing less on returning value to shareholders and more about serving your employees, community, and fulfilling your need for prideful purpose. We agree with that.

We also think bread can be a useful analogy for technology. Bread is a fundamental to the fabric of nearly all cultures. It exists as a commodity, and a craft. Both equally successful, and equally purposeful. And yet, if you've ever tried, you know making a good loaf of bread is still really hard to do. We're just trying to help founders make their brand of bread.

[1] low win-rates, and long treks to DPI have placed a drag on realized returns across the early stage. [2] We started our first company together in college—2011