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Atomic II – Wall Street Journal

 

Startup Studio Atomic Raises $150 Million for Second Fund

Firm says it turned away some $250 million from interested LPs

By Heather Mack

Oct. 10, 2018 5:46 p.m. ET

Atomic Management LLC, a venture firm that exclusively backs companies it develops in-house, has raised $150 million for its second fund.

Founded in 2013 and backed by investors including Peter Thiel and Marc Andreessen, the San Francisco firm launched 10 companies out of its $20 million first fund. It plans to form about 25 startups with the second, said co-founder and Managing Partner Jack Abraham.

At a time when sources of venture capital funding are at all-time-high and there has been a proliferation of new seed funds, Atomic tries to differentiate by testing out company ideas before attempting to build them.

The firm spends about $100,000 building prototypes, then will commit $2 million to $3 million to develop a team and product for the best companies. Successful companies have gone on to raise Series A and B rounds with prominent investors including Khosla Ventures, Peter Thiel’s Founders Fund and Felicis Ventures.

Mens’ health startup Hims is perhaps Atomic’s best-known startup. Officially launched in 2017, Hims quickly gained tens of thousands of customers and millions in revenue, and the company has now raised nearly $100 million. Other companies include co-living marketplace startup Bungalow Living Inc. and Terminal, an online platform for hiring and staffing engineering talent remotely.

The firm’s portfolio spans industries including health care, housing, enterprise software and artificial intelligence. The firm has six offices across North America, but all of Atomic’s current companies are headquartered in San Francisco and often collaborate with one another. For example, Bungalow leverages the platform of Terminal.


Quick customer and revenue traction for several portfolio companies as well as an exit earlier this year for Atomic’s voice analytics startup TalkIQ made raising the second fund relatively painless, said Mr. Abraham. The firm’s limited partners include university endowments, sovereign wealth funds, individuals and family offices.

“We turned away about a quarter of a billion dollars from other people who wanted to invest,” said Mr. Abraham, who added limited partners were attracted to the 20% to 30% ownership in Atomic companies.

Even with the relative success and popularity with LPs, Atomic hasn’t been immune to regular startup woes. In March, Atomic’s Wi-Fi marketing startup Zenreach Inc. laid off 20% of its staff and Mr. Abraham stepped aside as chief executive. The company, which was one of Atomic’s first to be launched, had raised $80 million to date.

Still, Mr. Abraham believes the Atomic model can de-risk much of the process of building a startup. The prototyping, shared in-house resources and talent enabled the firm to grow companies like Bungalow and secure assets normally only available to later stage companies. The year-old company made its public debut in August with $64 million in financing, of which $50 million was debt.

“Testing allows us to kill off a lot of ideas that could otherwise waste a lot of time and money,” said Mr. Abraham, who noted the amount of data, decks and modeling for presentations on Bungalow convinced asset managers on Wall Street the early stage company could handle debt financing.