[REPLAY] Ali Hamed – Novel Venture Investing at CoVenture, Venture is Eating the Investment World 5 (Capital Allocators, EP.233)

Episode Summary

Executive Summary: Ali Hamed explains how CoVenture evolved from a startup experimenting with software and debt financing into a $2B multi-strategy platform spanning venture and credit. He argues venture should be built around where a firm has real edge—financing, fintech, platform economies, and novel assets—rather than mimicking elite VC firms. The conversation centers on underwriting discipline, speed, founder support, and how technology is creating new asset classes and capital needs.

Main Topics: CoVenture’s evolution and split between venture and credit (Priority: 5/5): Hamed describes the firm’s path from software-for-equity and SPV-based financing into a scaled credit platform and then into institutional venture investing via Crossbeam. The businesses were eventually separated to better institutionalize each strategy. Crossbeam’s venture strategy and firm identity (Priority: 5/5): Rather than imitate benchmark VC brands, Crossbeam focuses on areas where it has edge: fintech, lending businesses, platform economies, and network-effect decay. The fund is built to win economically, not stylistically. Sourcing, diligence, and deal-winning process (Priority: 5/5): The firm sources through a broad network, then uses diligence as a proving ground for whether it can help a company close customers, hire, and attract investors. Speed, preparation, and references are central to winning competitive deals. Founder quality, market size, and risk-based underwriting (Priority: 4/5): Hamed says founder, business, and market are all necessary; if any is off, they pass. They evaluate startups by inflection points of risk and think about what must be true for the business to endure, not just by stage labels or revenue milestones. Fintech and the rise of financing businesses (Priority: 5/5): The firm is especially interested in financing businesses, international BNPL, and software companies that increasingly sit in the flow of funds. Hamed argues many fintechs are bad businesses, so true underwriting skill matters more than in SaaS. Novel assets, platform economies, and crypto-adjacent opportunities (Priority: 4/5): CoVenture likes new asset classes such as Amazon seller financing, yield farming, metaverse guilds, and other ecosystems where traditional lenders or VCs struggle to understand the economics. The thesis is to finance cash flows, not just asset values. Fundraising, LP trust, and firm-building lessons (Priority: 4/5): Hamed emphasizes that LP trust took years to build, largely through prior credit performance, written communication, and educating the market. He stresses humility, realistic promises, and avoiding over-hiring as core lessons.

Key Arguments: CoVenture accidentally became a credit investor first because credit provided faster feedback loops and clearer underwriting than venture. A VC firm should not copy Sequoia or Benchmark if its edge and economics are different; it should build around what it can win at. Fintech requires real investing judgment because many fintech companies are simply bad businesses, unlike SaaS, which often screens as structurally strong. Platform investing should focus on where traffic, compounding, predictability, and monetization dynamics favor participants rather than the platform owner. Network effects are weakening in many consumer internet platforms; value is shifting from platform owners to creators and sellers. Novel assets like Amazon seller financing are attractive because they are cash-flow based, equity efficient, and still misunderstood by many lenders and investors. During uncertain or overheated markets, they prefer to invest more at the initial round and less in follow-ons, rather than chase high-priced later rounds. Deal access is earned through actions—speed, preparation, and actual help—more than through marketing claims or prestige. LP fundraising is a long-term trust-building exercise; the firm’s track record in credit helped make venture fundraising possible. The future economy will be built inside platforms, creating new jobs and financing needs that traditional capital allocators must adapt to.

Data Points: Coventure AUM: $2 billion - Ali Hamed describes the firm’s current scale. Historic AUM referenced: ~$100 million - He recalls the prior interview when the firm was much smaller. Current investing pace: ~$100 million per month - Hamed says the firm is now investing at a much higher pace. First institutional venture business launch: March 2020 - Crossbeam’s institutional venture strategy began then. Crossbeam Fund I size: $25 million - He references the first Crossbeam venture fund. Co-investment alongside Fund I: $100 million - He says they co-invested heavily and deployed too quickly. Companies backed in first Crossbeam fund: 25 - Used to illustrate outcomes and portfolio breadth. Profitable companies in first fund: 9 of 25 - He says nine companies in Fund I are over the stated revenue run rate and profitable. Revenue run rate threshold: over $20 billion - As stated in the transcript, used as a surprising metric for venture outcomes. LP relationship length before average check: 26 months - He says the average LP check took this long to develop. VC coverage list: 211 VCs - The team systematically tracks other VC firms for sourcing and intelligence. LP universe interacted with: ~550 - Across pools of capital, they have relationships with many LPs. Companies/backs in personal history: 70+ companies - Hamed notes his broader investing network and history. Typical diligence growth example: $400k to $800k monthly GMV - A company doubled GMV during diligence, increasing urgency to invest. Pre-deal diligence time: 8 weeks - Used in the example where company traction accelerated during diligence. Early-stage reserve convention: 2x reserve per $1 invested - Historical approach they used to think about follow-on capital. Expected return hurdle by stage: 30-50x seed; 10-20x Series A; ~10x Series B - He describes loose venture math used to assess stage economics. Funding growth example: 15-20% month-over-month - Example of a vertical SaaS business that would attract broad funding. Amazon seller financing leverage: 80-95% advance rates - He contrasts this with traditional buyout-style lending.

Pivotal Quotes: "We don't win beautifully. We just try to win." — Ali Hamed: Explaining why Coventure builds differently from traditional prestige VC firms. "Venture capital is a contrarian business that you're really working hard to turn into a consensus business." — Ali Hamed: Describing the real job of investors after backing a company. "The best way I ever heard it was explained by like this documentary series on Netflix called Explain... there was like one like dark era where everyone was trying to win beautifully... and this new batch came along that didn't care about the style, they just cared about winning." — Ali Hamed: A metaphor for ignoring VC mythology and focusing on returns.

Implications: Listeners should expect more capital to flow into misunderstood, cash-flowing technology ecosystems, especially where software, marketplaces, and financing converge. The episode suggests future winners will be firms that underwrite novel assets, move fast, and educate markets rather than imitate legacy VC models.