Write a report with my instruction

Background Information of Homestake
? What kind of homebuilding?
?
An integrated home-building software and manufacturing company.
design
digital model
automated
manufacturing facility
create a home
3 days
3 weeks
? How to use the around $5 million funds?
?
?
Hiring more technical employees
Broadening their sales pipelines in both multifamily homes and
multi-home development projects
Competitive Advantages of Homestake
Time Saving
Labour
Saving
Cost
Saving
Margins
Creating
Homestake:
3 weeks
Homestake:
5 framers
Homestake:
$85,000
Homestake:
55%
Traditional:
2-3 months
Traditional:
+10 framers
Traditional:
$125,000
Traditional:
10%
Homestake V.S the Other Two Startups
?
?
?
?
?
?
?
?
Zippia. “25 Essential US Construction Industry Statistics [2023]: Data, Trends And More”
Zippia.com. Sep. 26, 2022, https://www.zippia.com/advice/us-construction-industry-statistics/
Industry Overview
Threat of Substitutes
Threat of New Entrants
?
?
high startup costs
regulations
?
?
Bargaining power of
Suppliers
?
?
?
Bargaining power of
Buyers
limited number of suppliers
large scale of constructor
Competitive Rivalry
highly fragmented
scratch X
modular homes and other
off-site construction methods
Current
Challenges
?
buyers have various choices
?
?
?
labor shortages
sustainable and energy-efficient
mass customization
PearàTarget – Homestake
?
Contribute a strong return to Pear.
?
Find companies that align with its skill; set where it can be a value-add and thought
partner to the company’s founders, build a strong track record of investment.
?
Develop an aggressive personal brand in a crowded industry.
Strategies – Improve Homestake
?
Take a generalist approach. (Reduce risks & Capture growth opportunities)
?
Invest in consumers.
?
Invest in business-to-business service.
?
Invest in industries that are experiencing rapid technological advancements.
(Healthcare & Financial Technology)
?
Invest in %ep tech (startups that are developing cutting-edge, often complex
technologies that have the potential to disrupt entire industries)
Summary
Future Plan
Potential Risk
Next Step
ˆire More Expert
otential Competitors
ue Diligence
“trong Focus
“upply Chain
upplier & Customers
„iversify
arket Sales Plan
egotiation
Management Team
HARVARD
I eus1NEsslscHooL
9- 8 2 2 -097
APR IL 25, 20 22
JO TANGO
ALYS FERRAG AMO
Pear Venture Capital
How and what to choose? On a Sunday morning in June 2021, Keith Bender brewed coffee and
brought a mug into his home office. It had been an eventful weekend so far. On Saturday, he had
celebrated his one-year anniversary of working at Pear Venture Capital (%ar`and spent the day
hiking through the state parks outside of San Francisco. He and his fianc`also carved out some hours
to finalize last-minute details for their August wedding.
Bender joined Pear as a Principal in 2020 after completing his MBA. The firmàfounders were Mar
Hershenson and Pejman Nozad, the former a serial entrepreneur-operator and the latter a former rug
salesperson who had become a prominent individual investor. The partners launched their first $50
million fund in 2013 and established Pearàheadquarters in Palo Alto, California. In the ensuing years,
Pear raised two more funds, and two of its portfolio companies went public: Guardant Health in 2019
and DoorDash in 2020.
Sunday was a busy day for Benderàventure capital (ƒ`job. The Pear team met to review their
investment pipeline every Monday morning, and investors emailed interesting start-up ideas to each
other by 5 pm every Sunday. As Bender re-read through that weekàmany emails and pitch decks, he
narrowed down his list to three companies. Conscious of consuming too much air-time at the Pear
Monday meetings, he recommended one business plan each week. So, he wanted to narrow his list to
a single finalist.
But which one? Choosing was particularly challenging that Sunday, as the /p three$ecks were
all intriguing. As he clicked again through the presentations, Bender considered how each one aligned
with Pear, what was happening in the broader seed market, and his personal goals. Another contextual
point was that early-stage investing was high-risk. Most new ventures failed, and the successful ones
required many years to get to a meaningful exit. An investoràpersonal investment track record defined
that person in the marketplace, and it followed them their whole career. ou are what your record
says you are, merican football coach Bill Parcells supposedly said. Few things were as true as that
in VC, and Bender felt he had to choose wisely.
Which pitch deck should he recommend?
Senior Lecturer Jo Tango and Research Associate Alys Ferragamo prepared this case. It was reviewed and approved before publication by a
company designate. Funding for the development of this case was provided by Harvard Business School and not by the company. The companies
Dover.Fi, Homestake, and Constellation, and all associated executives are fictional. HBS cases are developed solely as the basis for class discussion.
Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
Copyright 2022 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied,
or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
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Pear
History
Hershenson and Nozad founded Pear (see Exhibit 1 for full biographies). Previously, Hershenson
was an entrepreneur for 13 years and had launched three start-ups in the mobile/e-commerce,
enterprise software, and semiconductor industries. She had earned a Ph.D. in Electrical Engineering
from Stanford University, where she developed a ground-breaking technique for optimizing the design
of analog semiconductors. Nozad followed an untraditional path into venture. He began his career as
a rug salesman in his home city of Tehran, Iran, before fleeing to Germany in the 1980s and immigrating
to the United States shortly thereafter. 1 He worked a series of customer service jobs before joining a
Bay Area rug store, where he stayed for 15 years, often selling to venture capitalists. The successful rug
store owners eventually decided to launch a VC fund and made Nozad their deal scout. 2 Nozad and
Hershenson met in 2001 when he invested in Hershensonàhusbandàcompany and then backed one
of Hershensonàcompanies in 2004.
Nozad first created the idea for Pear in 2009. He approached Hershenson as a possible co-founder,
but she declined. She remembered, èen Pejman first reached out to me, I said: ou¥ crazy, I have
never invested. But this guy never gives up. 3 Despite this initial setback, Nozad continued working
on different ways to convince Hershenson to join him. She was persuaded by his persistence and joined
him in early 2013. The partners began investing out of Coupa Caf)n downtown Palo Alto. They
initially worked under the name Pejman Mar Ventures. (They later changed the firmàname to %ar
VC.`After a few months of collaborating and meeting founders at the caf the partners decided it
was time to formally launch a fund together. The firm closed its first $50 million fund later in 2013,
which New York Life Insurance Company, the University of Chicago, and Kamehameha Schools
backed. 4 5
In August of 2013, just a few weeks after raising their fund, Nozad saw the food-delivery service
company DoorDash when it was part of Y Combinatoràaccelerator class. He excitedly brought the
company to Hershenson, who was skeptical at first but was convinced after meeting Tony Xu, the CEO,
and several restaurant owners. The two decided to move forward with a $250,000 investment in
DoorDashàcompetitive seed round, which CRV and Khosla Ventures co-led. 6 The partners found that
this deal exemplified what they wanted to do at Pear: back the top 1% of founders, do whatever it takes
to win, and work as a team.
The early days at Pear also proved that Hershenson and Nozad worked well together. Nozad said,
å have a lot of trust and respect for each other. We complement each other well. When I was
originally thinking about starting a firm, I imagined walking into a meeting in a garage with new
founders. I wanted to be able to say I can be your best partner. But I knew, as an angel investor with
no operating experience, that I needed a non-investor who had experience building companies, and
that was Mar.‰n the following years, Pear closed a second fund at $75 million in 2016 and a third one at $160
million in 2019. By mid-2021, Pear was planning an early 2022 fundraise and strategizing for the future.
The Pear founders had very specific and ambitious long-term goals. Nozad said, õr mission at Pear
is to build the best seed-stage firm and be the best at bringing entrepreneurs from to product-market
fit. econd, we want to build an institution that lasts for more than 100 years. All of our decisions are
based on these two goals.²
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Strategy
Hershenson and Nozad wanted to focus exclusively on pre-seed and seed-stage ventures. In 2013,
they wrote initial checks between $250,000 and $1.5 million, and this range had doubled to $500,000
and $3 million by 2021. They sought category-defining companies that they could help go from to
1,4argeting companies that often had no products, customers, or product-market fit. Pear took a
generalist approach, investing in consumer, business-to-business, healthcare, %ep tech(companies
focused on advanced scientific or engineering challenges), and financial technology. They primarily
focused on California-based companies, but they were opportunistic in all geographies and had a
growing portfolio of Latin American companies.
Sourcing
Sourcing investments was a seed firmàlifeblood. Pear initially developed a multi-pronged
approach focused on students. In 2014, the firm created /rm!t Stanford University, Harvard, MIT,
the University of Pennsylvania, the University of California Berkeley, and other universities. Dorm had
multiple initiatives. %ar Garage7as a nine-month program to teach entrepreneurship to
engineering students. The goal was to prepare students to build companies and supercharge their
growth. %ar Competition/ffered $25,000 uncapped SAFE (simple agreement for future equity)
notes and typically received more than 500 pitches annually. %ar Fellows/ffered students a sneakpeek into venture capital, and several Fellows every year later received job offers at larger firms such
as Lightspeed, Khosla Ventures, and General Catalyst.
In addition, the firm also had %ar Accelerator,! selective 12-week company-building bootcamp
open to students and entrepreneurs with industry experience. The program was intentionally narrow
in scope, accepting 10 to 15 companies per class from over 1,000 applications. In comparison, Y
CombinatoràSummer 2021 class had 377 companies. 7 This small size allowed the companies to work
closely with Pearàteam, and each company typically received about 50 hours of guidance Pear also
invested $500,000 in each company for a 5% stake. Over six years, 70 companies graduated from their
accelerator. By 2020, 88% were still active or had sold. Nine companies had valuations greater than
$150 million; Pearà10% success rate on that metric compared to Y Combinatorà5% as of July 2021. 8
Other sourcing initiatives included outbound outreach and building a community at-large. For the
former, Pear developed sector roadmaps that used a thesis-driven program. Investors identified new
trends and contacted potential companies. For the latter, Pear hosted up to 100 virtual and in-person
events per year, such as its ¯under Circle0rogram that offered support networks to entrepreneurs,
starting with a female-only program. Pear also regularly sponsored networking dinners, speaker
events, and workshops for its portfolio companies.
Pear Dorm and Pear Accelerator brought in approximately 50% of the firmàdeals, and the other
50% came from its outreach and community efforts.
Pear in 2021
The firm had grown from just two founders in 2013 to a team of 18 in 2021. As of the summer of
2021, Pear had nine investors, five Visiting Partners, a three operations professionals, and one engineer
(see Exhibit 2 for the full Pear team). The team had 13 full-time employees and planned to add more
a Experts at product-market fit, growth, recruiting, and fundraising who worked with Pear companies.
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Pear Venture Capital
investors and portfolio-support capabilities (on the list were functional experts in recruiting, go-tomarket, and marketing expertise).
By 2021, the Pear founders felt that they had achieved some momentum. Early Pear wins included
two IPOs: Guardant Health in 2019 (Nasdaq: GH, $1.6 billion market capitalization at IPO) 9 and
DoorDash in 2020 (NYSE: DASH, $60 billion). 10 In aggregate, its portfolio had raised $5 billion in capital
and its valuation was over $90 billion. Both Pear I and Pear II had performed well, with Fund I in the
top 1% of venture returns and Fund II in the top fifth percentile. In addition, Nozad and Hershenson
were featured on the 2021 Midas List as #15 and #29. 11
Keith BenderàBackground and Goals
Bender joined Pear as a Principal in 2020 after completing his MBA (see again Exhibit 1 for his full
biography). He started his career at Boston Consulting Group, and then he went to business school
with the goal of entering VC. He gained exposure to VC through several courses and his schoolàstartup bootcamp. He also interned at Bessemer Venture Partners, where he worked on the consumer team.
While there, he helped track seed-stage firms to find future Series A and B investments. Pear was one
of them. Bender grew increasingly interested in the seed-stage market, and he decided to pursue a fulltime role at Pear after graduation. He was attracted to the firm for several reasons, saying:
The founders at Pear are highly ambitious and want the firm to outlast themselves.
Many venture firms end up like giant supernovas that ultimately implode when it comes
to succession planning. The partners at Pear have been assembling the right team from
the beginning to make sure this does not happen, and they made it clear that they hoped
for new investors to become deeply involved in building Pearàplatform for the future.
On their current trajectory, I could see that Pear would be an enduring firm. They had
gotten past the initial stages of firm building and proven a successful investing model.
Finally, I loved the seed stage. I wanted to be able to òow up7ith the portfolio
companies. There is something special and synergistic about seeing the entrepreneurÊjourney from beginning to end while I am also coming up to speed beside them.
Bender had several goals as a new investor. Most important, he wanted to contribute strong returns
to Pear. Bender also wanted to find companies aligned with his skill set where he could be valueadditive and a thought partner for company founders. His goal along the way was to build a strong
investing track record and develop a positive personal brand in a crowded industry. Bender knew that
all this would take time. Seed companies typically required a year before raising their Series A, and
one source found that VC-backed companies that did go public took over eight years to do so. 12 He
also realized that early-stage investment was very risky; one source estimated that 75% of VC-backed
investments failed. 13
The State of the Seed Market
Pear invested in both pre-seed and seed stage companies. They defined 2e-seed!s companies at
the ¥ro stage,4hose developing a minimum viable product but had not yet shown product-market
fit. Pear defined åed!s companies that were just starting to prove product-market fit and had some
traction in the market. Other publications, like Pitchbook, described seed investments as the initial
4
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financing for a new enterprise in its earliest stages of development, regardless of check size. 14 b Pear
liked to target $250,000 to $750,000 pre-seed checks and $2 million to $4 per seed company. 15
The seed market changed dramatically between 2011 to 2021, with all numbers pointing up: the
median seed financing grew from $0.5 million to $2.5 million, 16 and the number of seed financings also
increased (see Exhibit 3 for seed deal size and count over time). Similarly, the median seed pre-money
valuation grew from $3.6 million to $8 million (see Exhibit 4 for seed pre-money valuations over time).
At the same time, companies were taking longer before raising seed capital: the median company in
2021 was 2.4 years old when it closed its first seed investment, up from 12 months old in 2011. 17
Bender started his VC career during a robust year. VCs were fearful that COVID-19 in 2020 would
retrench the industry, but it ended up being a banner year. US venture capital funds set new records
for deal-making, exits, and fundraising. For example, the industry deployed an all-time high $150
billion of capital, and industry exit values were a record $290 billion. 18 2021 was shaping to be even
better. The VC industry globally was deploying capital at the highest rate ever, 19 and analysts expected
VC returns and fundraising to continue increasing. ìobal venture capital is crushing all records in
2021,2ead one headline. 20
All of this activity attracted many entrants. Hershenson said, ¥nture capital has changed more in
the last two years than it has in the past decade, and more in the last decade than the previous two
decades. n addition to traditional seed firms, like Pear, incubators such as Y Combinator and
TechStars, or VC firms, such as a16z and Sequoia, raised seed-focused funds among a slew of many
others. Non-traditional investors also entered the segment; this cohort included private equity
investors, mutual funds, sovereign wealth funds, hedge funds, corporations, and family offices. 21 In
2011, 166 non-traditional investors participated in seed rounds; by the end of Q2 2021, 400 nontraditional investors did. 22 (See Exhibit 5a and Exhibit 5b for non-traditional investors activity.)
Finally, online technology platforms (AngelList, Flow, and Assure) allowed anyone to crowdsource
capital and be a seed investor.
Bender had seen repeatedly first-hand how competition forced firms to make decisions within days.
As VC returns increased and made the news headlines, more competitors entered the seed space,
compressing timelines for everyone. Bender kept the market context in mind each time he reviewed
business plans.
The Opportunities
On a June Sunday in 2021, Bender clicked through again that weekàmost promising three pitch
decks: Dover.Fi, Homestake, and Constellation.
Dover.Fi
The first company he looked at was Dover.Fi (/verl a collaborative strategic finance and vendor
management platform based in New York City (see Exhibit 6 for details on Dover). The company had
identified a gap in the vendor management platform space. Dover saw that many enterprise-level
software solutions were overly complex and too expensive for small-to-medium-sized companies
(ÍBsn It also noticed that many start-ups were managing their accounts payables through
spreadsheets and email, which was time-intensive and inefficient.
b All following data points in this section used the Pitchbook definition for seed-stage.
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Pear Venture Capital
To fill this gap, Dover built a software platform for SMBs with the goal of handling spending
approvals, vendor management, and non-personnel spending. The platform also provided insights on
spending levels versus budget amounts, which was key for both heads of finance and business leaders.
Dover planned to target their sales efforts at company financial leaders, such as Chief Financial Officers
or Directors of Finance, at firms with fewer than 1,000 employees. In 2021, there were over 1.6 million
U.S. businesses with 10 to 1000 employees. 23 The sales strategy was to generate leads through content
marketing and build a small sales team to target high-value opportunities.
Bender initially found the company through a thesis-driven outbound initiative. He had done
significant research and outbound in the vendor management software space for the last few months.
He had been sharing regular updates and insights about the space with his colleagues; therefore, the
firm already knew a significant amount about the sector and felt relatively comfortable investing in the
space.
Doveràproduct development process had been very fast and effective. The team started in the
summer of 2020, built a sellable product in four months, and began selling in January of 2021. By June,
it had 12 successful pilot deployments and 60 active monthly users. In just four months, the platform
had processed over $3.5 million in client spend across more than 150 vendors. No SMBs had churned
out of their pilots, and 11 of the 12 customers expressed a desire to subscribe to Dover once the pilots
ended.
Dover believed it could offer add-on products to increase its average annual contract value
(CVn They planned to release a budgeting and analytics module in Q3 of 2021, for example, that
could add at least $8,000 to the companyà$15,000 average ACV. Other ideas in the queue included
integrating with spreadsheet applications and email servers and creating custom products for large
contract clients.
Bender took note of the team. Megan Lee, Airbnbàformer CFO of North America and Product
Director, led the team. While at Airbnb, she had built an internal vendor management system that was
adopted company-wide. The founding team also included a Chief Technology Officer, Senior
Founding Engineer, and Product Design Lead, all of whom had significant experience in building and
managing technologies.
Competition in the space seemed high. Products like OracleàProcurement Cloud system, Coupa,
and SAP Ariba dominated the enterprise market. These companies did not have products designed for
small companies, and their enterprise products were too expensive for many SMBs. But it was certainly
possible that the competitors would adjust their products to fit this niche. Additionally, several pureplay start-ups were targeting this space, such as Airbase, Ramp, and Brex, and they already had strong
brands and traction in the market. Dover believed its product was differentiated because it was not a
single-function product, and competitors did not provide analytical insights.
Dover had previously taken $850,000 from friends and family, but it had not yet raised institutional
funding. The founders aimed to raise between $2 to $3 million in a seed round in order to expand sales
and engineering.
Homestake
The second pitch was from North Carolina-based Homestake, an integrated home-building
software and manufacturing company (see Exhibit 7 for Homestakeàpitch). The founders at
Homestake viewed the market as outdated and ripe for disruption. Very little technology was used
when building a home. As a result, the process was highly manual, and labor was the largest cost for
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most homebuilders. 24 Job site productivity had gone down by 50% since the late 1960s, and the
construction industry had the lowest productivity gains of any industry. 25 Over time, builders tried to
manage their costs by selling modular homes, whereby èunks/f homes were made at a factory and
then sent to a construction site. One downside was that the homes were not customizable as
manufacturers strove for economies of scale.
Homestake tackled this market with an online software platform: an architect uploaded a design,
and Homestake then generated a digital model of the home, a bill of materials, and detailed blueprints.
All this information was then sent to Homestakeàautomated manufacturing facility, which built the
house modules, or what the industry called !nels. hese pieces were then sent to a job site and
assembled to create a custom home.
Homestake was able to produce panels quickly, typically within three days of submitting the
designs. It contracted with developers to build entire houses, passing through the cost of building
materials. Homestake averaged $400,000 in gross revenue for each home built in North Carolina. In the
future, the company planned to expand geographically by licensing its software and production line
process to builders around the country.
Pear first heard about the opportunity to invest in Homestake through another seed firm with which
they had previously co-invested. Bender then reached out to the founders at Homestake to learn more
about the company and heard that they were looking to raise between $4 and $5 million. The founders
had previously raised one institutional round, taking $1 million from a corporate venture arm of a
nationally recognized home-building company. Homestake intended to use this round to hire
additional automation engineers, software engineers, and job site leads. They also wanted to invest in
broadening their sales pipeline to bring in more multifamily homes and multi-home development
projects.
As Bender evaluated the pitch, he noted that the US new private residential construction market
was over $600 billion in size in 2020 and had seen a steady recovery since the Great Financial Crisis. 26
By 2020, there were approximately one million such houses completed per year. 27 Demographics
experts expected the housing market to continue growing, as the US population had increased faster
than new construction for the past two decades. 28 Furthermore, the residential construction market
had boomed throughout the COVID-19 pandemic, growing 5.5% quarter-over-quarter in Q1 2021. 29
The industry also seemed highly fragmented, and there was no dominant player.
In the last two months, Homestake had built three units (two single-family and one multifamily) in
North Carolina for $1.2 million in revenue, and it had 10 more units under contract for a projected $4
million in revenue. It had letters of intent worth $45 million, and it had just made an investment in a
production facility to support approximately $50 million more in annual throughput capacity.
Homestakeàprocess dramatically reduced costs and produced ïftware-like-argins of 55%, which
was much higher than the 10% margins that existed in the construction industry.
Its management team had strong engineering backgrounds, and two of the founders had attained
ranks of Major and Captain in the U.S. Armyà75th Ranger Regiment. However, they did not have
extensive experience in creating software or company-building. None of the founders had started or
worked at a technology-based start-up prior to Homestake. Bender was certainly open to working with
and coaching first-time founders, but this typically required more of Pearàtime.
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Pear Venture Capital
Constellation
The final pitch deck was from Constellation, a îe-stop-shop3pace company in Los Angeles (see
Exhibit 8 for the Constellation pitch deck). Pear was not actively looking into the space market and did
not yet know much about it, but a peer at another firm forwarded Bender the deal with their
recommendation. Constellation aimed to be the first all-encompassing space supplier. It planned to
build a portfolio of small commercial rockets, propulsion systems, launch systems, and satellite
services. Constellation owned several patents for its products and had three licensed patents with
NASA.
The entrepreneurs had extensive experience in the space industry and company-building expertise.
One founder, Mitchell Moulton, had worked in the commercial space industry for over a decade and
was a recognized figure in the industry. He had been personally recruited by Jeff Bezos to co-found
Blue Origin, a market leader in the commercial rocket space. While at Blue Origin, Moulton helped
lead a team focused on building small commercial launch operations. He had also previously built and
successfully sold a satellite data service company. The second founder, Arnold Akhmedov, Ph.D., had
worked at the NASA Jet Propulsion Lab for 18 years, where he led the development of deep-space
satellite imaging technology. He then worked as a Visiting Professor at the Massachusetts Institute of
Technology, and he was internationally recognized for his aeronautical research. The management
teamàthird member was the Chief Reven