Introducing Calm Company Catalyst: invest directly in calm companies

“How can we scale to support 1,000s and 10,000s of calm companies?” 

This is our strategic lens at Calm Company Fund, where our mission is to support the founders of as many calm companies as possible. Today, we're excited to further that mission with the launch of Calm Company Catalyst, a platform to catalyze even more investment in calm companies than our fund can do alone.
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While our support for founders comes in many forms, including community, resources, and mentorship, providing capital for calm companies is our core focus. Of those, capital has always been in the scarcest supply and making capital more available to founders of calm companies is a core focus for us. For the last four years we have primarily done this by raising capital for our fund and investing it directly. We’ll continue raising and investing our core funds, but this year we’re introducing Calm Company Catalyst, a strategy to catalyze even more investment in calm companies than our fund can do alone.

For those not familiar, calm companies are real businesses that focus on profitability, sustainable growth rates, capital efficiency, and staying in the game for the long-term. To date we have primarily focused on SaaS and other software-enabled calm companies, though with Catalyst we’ll start pushing those boundaries even further.

By planting our flag as the home for calm companies we see a wide array of inbound investment opportunities that don’t quite fit the thesis for our core early stage fund to invest in. They may be larger check size deals, later stage, different structures like debt or buy out, or simply businesses that are outside my personal domain of expertise. These are often fantastic deals, and we might be the first or only investor to see them, but in the interest of staying laser-focused as we refined our processes, we have historically just passed on these opportunities as not a fit for the fund.

Well starting this year we are going to put the most interesting of those opportunities through our investment research process, and the best ones we’ll bring to the Catalyst community of investors to directly invest in each company.

Any accredited investor can apply to join the Catalyst, though investors in our funds will get preferential access and economics (more details below). Practically speaking this means we’ll be setting up Special Purpose Vehicles (SPVs) to invest directly in each company. We will negotiate the terms of the investment and the total “allocation” that is available to the Catalyst, provide an investment memo summarizing our research, and a link to invest directly. We have built our own internal portal for providing access to each deal and our investment memo and we’re working with Sydecar whose software will manage the actual investment closing process. In practice this is not any different than the SPV/syndicate investing you would sometimes see in venture deals. The differences will just come from applying this proven financial structure to our strategy and thesis.

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Why CATALYST, why now?

There are three main reasons why we’re launching this program now.

‍1/ We’re heading into the era of calm companies

While I think investing in calm companies is a sound strategy in any market, this year is going to be an incredible time for it.

• We’re heading into a tidal wave of calm company founders. Founders and top employees from recently imploded unicorns, or simply new founders who watched it from the sidelines, are going to decide in droves that they want their next company to be a calm one.
• Certainty of that next round of financing has never been lower so profitability and an optionality will be a competitive superpower. Growing calm companies who don’t need the money, but decide to raise opportunistically will skip to the front of the line with investors.
• Mega trends like rising interest rates, liquidity challenges, and generative AI disruption have never made it harder to place a bet now that yields a home run outcome 10 years down the road. An investor portfolio of base hits will massively outperform.

2/ It’s time to grow our investor community

Operating out of a single fund, where we are limited to 99 or 249 individual LPs, has constrained the number of investors we can work with. As more investors and capital allocators become calm company-curious, we want to build an easier on-ramp to investing than taking up a limited seat in our funds. The Calm Company Catalyst will be a fantastic way for new investors

We will also use the Catalyst investment process as a way to create a more collaborative investment process. While I send detailed updates to our fund LPs, they have always been an after the fact explanation of why we invested. We haven’t historically had a format for active discussion of in-progress investments and I’m excited to experiment with different formats here.

3/ Exploring more of the calm company thesis

From the moment we hit publish on this idea 4 years ago, I have been hearing that the thesis we have been building also applies to calm companies in services, DTC, CPG, marketplaces, media and creators, SMBs, real estate, and so on. I have always said, “you’re probably right, but I don’t personally have the domain expertise to evaluate 1,000 opportunities in that space and pick the 10-20 best ones so I’m sticking mostly to software.”

The Calm Company Catalyst gives us a format to start saying yes to some of these opportunities and collaborating with experts in these fields.

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What kinds of investment opportunities?

Here are some of the kinds of opportunities we are already seeing that we expect to bring to the Calm Company Catalyst:

• Slightly later stage and larger checks. Our core fund typically invests $200k-350k in companies doing up to $1m/year in revenue. We do see great investment opportunities where the right amount of total capital is somewhere in the $500k-$1.5m range. In this case we would likely invest out of the fund and then open an additional allocation to the Catalyst‍
• Follow-on investments in Calm Fund portfolio companies. Because we expect that most calm companies will not raise additional capital for some time, our funds do not currently reserve any dedicated capital for follow-on investments into our portfolio companies. It does happen that our portfolio companies decide to raise an opportunistic round or even a more traditional venture round. When those opportunities arise, we’ll look first to Catalyst investors to fill our pro rata option to continue investing in those companies that seek additional investment.‍
• Founder Liquidity deals: buying secondary stakes in more mature calm companies. Almost 2 years ago, we identified another big gap in the market and way to support calm companies. Founders of mature, profitable companies were seeking to get liquidity on a small (5-20%) portion of their equity—and seeking much of the same community mentorship and resources that we provide at the early stage—without giving up the control or size of stake that most private equity/growth equity players wanted. We have a healthy pipeline of interest in this product that we’ll work through and bring to Catalyst investors.

• Equity financing for full acquisitions. We have a strong network of operators who are seeking to acquire calm companies rather than build them from the ground up and often need to raise equity capital to complete the acquisition. While I think we’re in a strong position to vet these opportunities, they don’t quite fit the model for our core fund to take a large position in, but will be a great fit for the Catalyst.
• Expanding beyond software. To begin with, we are going to stay in our wheelhouse of software and software-enabled businesses. But over time I’d like to explore collaborations with other experts to bring non-software investments to the Catalyst. More on that as we go.

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What this means for founders

As of right now, we are open to a much wider range of investment possibilities than we have been in the past. We will evaluate them through the same process and then have a discussion with each founder about whether we think investing is a fit for our fund, the Catalyst, or both. The best place to start that conversation is still right here.

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How this works with our fund investing

Investors who subscribe to our fund will automatically join the Calm Company Catalyst and receive preferential access and reduced fees on all Catalyst investments during their fund subscription. The detailed break-down and current investment opportunities are summarized here.

Note: sadly, both our subscription funds and Calm Company Catalyst are only available to accredited investors. Providing accredited investor status is fairly easy. More info here.

1. Current LPs in our fund will automatically be invited to Calm Company Catalyst opportunities.
2. To join our upcoming Fund IV and receive preferential access and fees on Catalyst deals, review the details here.
3. To be apply to join the Catalyst and be notified when our first batch of opportunities is released, fill out the form below.