This New York investor just raised a $60 million fund to capitalize on what he sees as a big weakness in the Silicon Valley VC firms

Torch Capital

Jon Keidan’s consumer venture firm Torch Capital announced Tuesday it secured $60 million for its first fund from figures including financier Silas Chou, iHeartMedia chairman and CEO Bob Pittman, and Rent the Runway cofounder Jenny Fleiss.
Keidan told Business Insider that he thinks Silicon Valley investors do consumer startups a disservice by comparing them to pure-play technology or software businesses, putting too much pressure on founders and ultimately allowing them to fail.
Keidan has invested in real estate startup Compass, online doctor scheduler Zocdoc, fast-casual salad chain Sweetgreen, investing app Acorns, and men’s health company Roman, among others.
Torch Capital, his first venture investment fund, will be based out of New York and Los Angeles because the San Francisco investing scene is oversaturated and there are fewer successful consumer startups, according to Keidan.
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Not every consumer business is worth $1 billion — and they shouldn’t always aim to be.

At least that’s Jon Keidan’s thesis for Torch Capital’s first fund. The consumer-focused $60 million fund is backed by some of the biggest names in media and consumer tech, including financier Silas Chou, iHeartMedia chairman and CEO Bob Pittman, Rent the Runway cofounder Jenny Fleiss.

"A lot of VCs really don’t understand consumer, and software skills are working against them," Keidan told Business Insider. "They take product-market fit and audience traction and overvalue it. That’s not how these brands were built, and their growth isn’t a straight line, it’s more like stair steps."

Keidan says that he built Torch Capital to help "see through" what Silicon Valley investors get excited about, to better help those companies scale appropriately — as in, to a size and valuation that befits their business, rather than the mega-growth and $1 billion-plus valuation that so many tech companies push for.

"One of the two biggest mistakes I see is what works small doesn’t work at scale," Keidan told Business Insider. "And how you define scale is misrepresented by investors that don’t see what a healthy trajectory of a healthy consumer business looks like. The things these founders are guided to do by tech investors is wrong."

Keidan’s against-the-grain approach is a testament to his fairly unorthodox background. In college, he managed Dave Matthews Band before turning into a large-scale studio and music promoter during the "digital disruption" days, as he calls them. He ultimately went into "business boot camp" with McKinsey’s media, tech, and digital division after graduating from business school.

Along the way, Keidan continued to cultivate various entrepreneurs he thought were "doing interesting things."

As an angel and seed investor, Keidan can count real estate startup Compass, online doctor scheduler Zocdoc, fast-casual salad chain Sweetgreen, investing app Acorns, and men’s health company Roman among his personal portfolio. Moving forward, he said his team is looking at companies that focus on personalization, like Sweetgreen and Roman. He believes that all customers, regardless of gender or income, want a product that’s made just for them, and points to several of his personal investments that are "hitting it out of the park."

"I always hear there is no due diligence in early stage investing and I call b——t on that," Keidan said. "We take the initial numbers from an entrepreneur’s pitch and model everything out ourselves. Our due diligence is half our sourcing, and half our ability to analyze and see through what those companies will look like in two, three, four, or five years."

Keidan is keeping Torch Capital headquartered in New York City given his network, but he also thinks a consumer-focused venture firm would be outgunned in Silicon Valley, a market that he says already produces relatively few successful consumer startups.

"There are a billion funds in San Francisco and it’s well picked over," Keidan said. "That’s not where we will see the opportunities others won’t, and to be honest I don’t think San Francisco is a great place to start a consumer company. That doesn’t mean we won’t invest in a San Francisco company, but the philosophy that is successful out in San Francisco doesn’t work when a human is on the other side of the equation instead of a ‘user’."

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Source: Business Insider – mhernbroth@businessinsider.com (Megan Hernbroth)