You’ve undoubtedly heard the phrase a lot: Downturns are the best times to start companies. That's certainly what venture studio Atomic is banking on—literally.
The Miami-based firm just raised its fourth, and largest, fund—a $320 million vehicle that will be used to fund new startups the firm creates and invest in existing portfolio companies, Atomic told me. The firm last raised a $260 million fund in 2021. “I think there hasn't been a better time in modern history” to build startups, Jack Abraham, the founder, CEO, and managing partner of Atomic, declared.
Abraham says that “during economic boom times, talent becomes scarce.” But “that has definitely shifted—there's so much talent availability to the point that we actually can't process it all,” he told me last week.
The way Atomic operates isn’t like a normal VC firm: They have a running list of hundreds of ideas for new companies—Abraham tells me the list now numbers over 800 ideas—that the team spins up, finds cofounders for, and funds with their cash (Atomic general partners are cofounders of all of the companies, and, to my surprise, all 75 Atomic team members get equity in each startup, Atomic told me). They’ll invest a chunk of cash (say, a few hundred thousand dollars) in a new idea, prove out the thesis, and if everything is still looking promising, they’ll invest in the low-single-digit millions to start building (many firms also employ the same model). Since it was founded in 2012, Atomic has built companies including digital health startup Hims & Hers, which went public via a SPAC in 2021.
Atomic’s limited partners, or LPs, include investors who focus specifically on venture studios as well as institutional LPs. VCs like Marc Andreessen, who invested in previous Atomic funds, also joined in the new one, the firm says. Their capital is “over 90% institutional,” according to Abraham. Atomic added three new LPs in this fund after one prospective LP based in Europe unexpectedly pulled out late last year owing to capital issues, Abraham told me.
One such new LP is private markets investment firm StepStone Group. Though they have invested in other venture studios before, partner Ashton Newhall highlights the way Atomic can “reverse engineer the way that company formation occurs through this market validated approach,” which they believe is “one of the better places to be able to allocate today,” he told me. He says StepStone views venture studios as “a bit higher risk, but also higher reward,” adding that they expect a 3x to 5x net return for early-stage investments.
Abraham believes there's a lot of opportunity right now, and “we have every industry being open to technology, disruption, or integration in different ways. We have A.I. advancing at extremely rapid paces.”
Like seemingly every VC these days, Atomic is interested in A.I., as well as areas like energy, health care, and software for enterprises. Though Atomic says they don’t have a target of how many companies they want to start with this new fund, the firm says they founded 16 new companies in the last year, and have grown their team to 75. Abraham wagers that “over the course of the life of this fund, we will form likely in excess of 60 companies” of which about half will make it to market.
The timing of it all is tricky. Venture funding dropped to a three-year low in the first quarter as headwinds like rising interest rates continue to put a damper on the private markets. Meanwhile, LPs are growing stingier with their cash: “The macro environment has certainly fostered a risk-off approach [for] many allocators,” Newhall says.
But Newhall argues Atomic’s model is efficient and has a well-defined process: It’s meant to weed out the not-so-winning ideas quickly. Abraham tells me roughly 50% of the companies they start and begin testing get shut down before they go too far or burn too much money. StepStone’s Newhall, meanwhile, says that “great companies are created in good times and in bad. What typically happens is in bad [times], you own more of them.”
In addition to the new fund, Atomic also brought on its third—and its first female—GP, Kristin Schaefer, who previously served as the CFO of Postmates and spearheaded the company’s sale to Uber in 2020. She started at Atomic full-time in April (alongside Schaefer and Abraham, Chester Ng is the firm’s third GP). After being at one startup for a while, Schaefer told me she wants “to build another Postmates, another Airbnb, Uber—but not just one, like, the opportunity to build the next three, the next five.” She says right now every company needs to think about creating options for exits and figuring out how to become profitable—two of her key jobs at Postmates.
Now we’ll just have to see if this crop of fledgling companies Atomic and others are trying to build turn into those titans—or if they flounder.
ICYMI: There was a lot of news last week, so in case you missed it, here’s a couple of the top hits:
SoftBank posts record $32 billion loss at its Vision Fund tech investment arm—CNBC
Revolut CFO quits for ‘personal reasons’—Sifted
Elon Musk names NBCUniversal’s Linda Yaccarino as new Twitter CEO—Fortune
See you tomorrow,
Anne Sraders
Twitter: @AnneSraders
Email: anne.sraders@fortune.com
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