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‘Airbnb mafia’ fund Wave Capital makes it official, closing its debut fund with $55 million

A couple of weeks ago, Airbnb announced some major changes to the ways it compensates employees before it goes public.

At least two former Airbnb employees and a longtime VC will be ready to fund those who leave when it does. They’ve been waiting on this moment since last summer, in fact. That’s when former Airbnb data scientist Riley Newman left the firm to start work on a venture firm, quickly enlisting the help of his colleague of several years, Sara Adler (Airbnb’s former head of corporate development) and former Madrona Venture Group principal David Rosenthal. What they set out to do with that fund, Wave Capital, is fund marketplace startups, including — especially, even — those founded by other former employees of the home-rental giant.

It’s an idea that has resonated with investors. Wave just closed its debut fund with $55 million in capital commitments, slightly more than the three were targeting. They’ve already begun putting it to work, too. To find out more about those bets, and where the three expect to shop next, we asked them for a few more details. Our chat has been edited for length.

TC: How exactly did this firm come to pass?

DR: Riley is really the hub for all of us; his wife and mine grew up together in Marin and have remained best friends since early childhood. As Riley’s career at Airbnb progressed and my career in VC progressed, we talked about doing something together at some point in time.

RN: Meanwhile, Sara and I sat beside each other and together reported to the person who was effectively Airbnb’s CTO and we were part of a number of working groups together. David and I started talking about doing something together and we quickly drew Sara into our plans.

TC: “Marketplaces” is both a huge mission for a venture fund and a narrow one. Why pursue it?

DR: For me, when I was at Madrona, we incubated the [dog services company] Rover.com and I saw the power of marketplaces and the importance of helping them get off the ground. And Riley and I talked a lot over the years about how he watched Greg McAdoo [formerly of Sequoia Capital and now of the venture firm Bolt] work with Airbnb in the early days, and the importance of a true lead board member. And we thought that between our three collective experiences, we could play that role.

SA: As a member of the corp dev team at Airbnb and at Dropbox and Facebook before that, I could also see the impact of investors even on the final stages of companies’ journeys.

TC: You’ve now fully closed the fund from institutional investors, including the fund-of-funds Cendana Capital. How many companies do you expect to support with it?

DR: We think roughly 18 to 20 companies. We intend to lead every round and to take board seats. We want to play the same role as Greg did at Airbnb.

SA: We expect for each partner to do one to two deals per year.

TC: You haven’t invested together in the past, and establishing an investing history together is usually really important to institutions that invest in venture funds. How did you persuade them that this wasn’t an issue?

RN: It was definitely a process. [Laughs.] We were told no multiple times. We had not invested together and it did come up quite a bit and was a disqualifying thing for people who care a lot about that. We underwent a monster due diligence process with [the investment consulting company] Cambridge Associates that thankfully put us on [institutional investors’] buy list. But we dealt with every flavor of [no] before that. I think what won everybody over were the skill sets that each of us have, and how well-rounded they are in combination with one other.

SA: I think our approach [appealed to investors], too. It’s kind of like what venture used to be 20 years ago, both in terms of the size of the investments we plan to make and the time and energy we intend to spend with the companies we fund.

TC: How many investments have you made so far, and how dependent on Airbnb are you for your deal flow? I know Nate Blecharczyk, Airbnb’s co-founder and chief strategy officer, is an advisor to Wave.

RN: Alma was our first investment. We spent months with [co-founder] Dan Hill [who was formerly a director of product and performance marketing at Airbnb and whose startup connect prospective donors with local philanthropies]. We helped them firm up their marketplace design and design a long-term strategy and our [check] was built around a financial model that we built for them to get them from seed to a Series A round.  We’ll have to go out and execute on that, but that process determined what they needed.

We have another investment at the finish line.

SA: Airbnb will be a big part of our network, especially with our first fund, because we know exactly who the great people are at the company, which you only know by working with them. But across my time at Airbnb and Dropbox and Facebook, I’ve been a part of acquiring 30 companies and I’ve interacted with thousands more during the evaluation process, so there’s a deep network of founders for us to draw from.

TC: There’s so much late-stage capital sloshing around. Do you think about how it will impact what you’re doing at the earliest stages of these companies’ lives?

DR: The tail is really wagging the dog in a lot of cases right now. I don’t necessarily see so much capital as good or bad; what’s important to us is that founders use their capital as a tool to accomplish their aims. When you let capital start driving your decisions, there are very real unforeseen circumstances.

TC:  Are there any sectors about which you’re particularly excited?

DR: We’re sector agnostic. We believe in the business model, whether it’s consumer or b2b or healthcare. Crypto, we’re a little scared by, but I suppose those are marketplaces, too.

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