Floodgate: On the Hunt for Thunder Lizards
Founded in 2008, Floodgate pioneered the "micro-VC" category, a new type of investment firm that raised smaller funds and made earlier, smaller investments in technology startups than traditional venture-capital firms. By 2015, Floodgate had raised three funds totaling $225 million and achieved outsize success with investments in high profile startups like Twitter, Twitch, Cruise Automation, and Lyft. Floodgate measured success in terms of its coverage of the top 10-15 exits in any given year. These "Thunder Lizards," which had the potential to change the business landscape and grow to Godzilla-like scale, accounted for 97% of returns. With increasing competition from micro-VCs and alternatives like crowdfunding, opportunity funds, and incubators, partners Ann Miura-Ko and Mike Maples wondered how Floodgate could continue to compete successfully in a rapidly changing venture-capital landscape. Should Floodgate stay with the micro-VC model it helped invent, or raise more capital, leveraging its successful track record to make investments at the scale of more traditional VC firms? In selecting a path, they needed to consider Floodgate's dual responsibility to entrepreneurs and LPs.