Antonio Rodriguez, who joined Matrix in 2005 after a company he founded — which Matrix-backed — was sold to Hewlett-Packard, spoke to us last week about Matrix’s largest fund in about 20 years, a vehicle of $800 million that the company closed in June and is now announcing for the first time.
It’s a lot of capital for the company, which, like Benchmark, has been consistent over the years in holding relatively smaller funds, even as many other venture capital firms have doubled, tripled, even quintupled their assets under management. (Like Benchmark, Matrix once raised a $1 billion fund during the dotcom era; it ended up paying half back to its investors when the market imploded.)
We spoke to Rodriguez about the new fund. We also spoke to him about how Matrix has partnered with Matrix Partners China and Matrix Partners India, respectively, founded in 2008 and 2006. (They mostly operate independently.) Since software infrastructure is a key focus area for the company – for example, it was an early investor in Hubspot, Zendesk and Canva – we also asked Rodriguez about web3, or the promise of a decentralized internet. It turns out Matrix isn’t putting much into it, not yet anyway. Following excerpts from our chat, edited for length.
TC: You recently closed a fund that is almost twice the size of your last three funds, which were $450 million each. You were really disciplined about size, then changed your mind. Why?
With our current fund that we just invested, every deal we did was either concept or seed or pre-seed or post-seed or Series A, so it really wasn’t about stage drift for us. Because of new entrants and because existing players are moving back to the A, [in recent years] you went from writing a $10 million check to, in some cases, $15 or $20 million, and we wanted to make sure we could keep doing those entry checks as the market grew. That’s still a lot [the case]especially for our categories.
So you really don’t see these Series A stage deals shrinking.
Not yet. For the best entrepreneurs, a Series A round can still be $20 million plus. We also like more technical projects, whether that be software or hardware, or ideally, [a company at the] intersection of both, and those companies just need more money.
Some of these later-stage outfits seem to be shrinking. Is it now easier to maintain your pro rata without throwing elbows?
It’s easier, and it will get a little easier. But if you look at our best exits from the last three funds, you’ll see that these B and C rounds don’t lend themselves well to what I’d call the spreadsheet jockeys. [For these companies], you really need more conviction, and in many cases that meant getting up, rather than expecting a Tiger or Coatue to come and fund that company within 72 hours. That’s one of the reasons maintaining our pro rata in this new environment may be easier, but it will be equally necessary.
Your target, which 20% to 25% ownership?
That’s about right. Historically, it has been somewhere between 20% and 25%. In the past year, I’d say we’ve tilted a little bit to 18% to 21% [when we would] enter ‘outside the draft’. But at least 20% to 25% is the long-term structural target for us as we move in somewhere between concept and Serie A.
When you say concept, are you talking about incubation companies?
Yes, some of our companies – including my company – started in one of our offices with an investor and an entrepreneur working on an idea on a whiteboard. we probably [dedicate] 5% to 10% of a particular fund [to this].
Matrix is an investor in Canva, the $26 billion graphic design company. Do you have a double-digit stake in that company?
Canva is a little different in that it wasn’t on the market when we did it. We’re top three on that cap table. So we invested the biggest check I believe in the seed round and we own in the single digits. There was an investor who was in the pre-seed round, and then a large multistage investor built a position over many rounds.
Why didn’t it go public while the market was still wide open? It was founded in 2012, right?
Canva is a great company and will be a great IPO when it comes, in good or bad times. Usually, companies go out because of something that will help the company strategically. Sometimes it’s just as tactical as the business is growing very fast, but by consuming a lot of cash and having access to the public market you can [access cash faster]. And if you can combine that with an open window, it’s a win-win for everyone.
What about the benefit of greater public awareness once a company goes public?
It will come. There are millions and millions of paying users on the platform. Think is a company that did the virality thing just right. It is viral as a consumer business, but effective for monetizing as a B2B SaaS business.
In your words, the big theme of Matrix this year is applied AI, as it affects everything from SaaS applications to software infrastructure to networking to what happens in the data center. I have not heard you mention crypto or web3.
I have to tell you – and I think the advantage of nine partners is that people can keep me honest here – but my own personal opinion is that it’s a bit of a mirage. My own personal opinion is that a trusted distributed database is quite interesting for a number of applications on both the B2B side and the consumer space, but most of the things out there – dare I say most of the things that a lot of people spend a lot of money on this two-year speculative boom that seems to have come to an end – it just feels like wishful thinking at best.
So you won’t hear me mention it because we’re not doubling or tripling. We didn’t raise $800 million to put half of that into web3 applications. We’ve made some investments, but that’s because we’ve followed the founders from payments to web3, or proptech to web3, and less because we’re excited about the prospect of starting a web3 practice here until we get the utility to the see applications.
Above: Matrix Partners’ team, whose members are based in both San Francisco and Boston. Rodriguez takes center stage.