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October 13, 2019,   9:54 AM

One Of New York’s Top Seed Investors Takes On Outside Capital For The First Time

Alex Konrad

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Image Credit: flickr

When entrepreneur Zachariah Reitano learned that his sister had a serious illness in 2015, he called one of his investors, David Tisch. Known to friends as “Z,” Reitano had founded a local marketplace app called Shout to take on Craigslist two years before; after completing the famed startup program Y Combinator, he’d moved back to New York City and set up shop in the offices of early-stage investment fund BoxGroup and its founder, Tisch.

Distraught, Reitano wanted to drop everything and focus on his family. With the majority of the seed funding Shout had raised still in the bank, some investors agreed—with a catch. “They were like, press pause and come back in six or nine months and try again,” Reitano says now. To the venture capitalists, Shout was now a sunk cost. But this way, if Reitano started a new company, their stakes would roll over into it automatically. “I knew it wasn’t a good idea, but I didn’t want to let shareholders down,” he says. In stepped Tisch, the tech-savvy scion of the billionaire Tisch family, which through Loews Corporation has stakes in drilling, financial services and hotels. “He said, ‘I know you might not need it, but in case you do, here’s permission to shut it down. Return the money. I’ll help with the documents if you need it, yell at the other VCs. Just go take care of your family,’” Reitano recalls. “I needed to hear that.”

Reitano’s sister’s health improved—she’s now about to have a child—and Reitano went back to work in early 2017 with a new idea in men’s health called Ro. The startup has grown far faster than Shout ever did, reaching a value of $500 million today after raising $176 million from investors like FirstMark Capital, General Catalyst and Initialized Capital. But Reitano’s first investment—three months before other seed investors, and at a lower price—came from BoxGroup.

BoxGroup lacks the mainstream name recognition of big investment shops like Andreessen Horowitz or Sequoia. Behind the scenes, relationships with founders like Reitano have helped the firm grow into one of the most wide-reaching seed-stage firms in New York’s flourishing tech ecosystem. Writing one small check at a time, Tisch and BoxGroup have invested more than $100 million since 2010, grabbing early stakes in a portfolio of 300-plus companies that includes a who’s who of exits, unicorns and high-flyers such as Flatiron Health, Glossier, Harry’s, Warby Parker and Superhuman.

“By not owning a significant part of the cap table, we’re able to truly align ourselves with founders,” Tisch says. “We can be the friend in the room, not the parent in the room,” adds longtime partner Adam Rothenberg.

Drawing its investments entirely from the resources of Tisch and his relatives, the multibillion-dollar family behind Loews, BoxGroup has kept its deal sizes small enough to ensure that other firms will make room for them in competitive rounds, or that the fund can be the first to say yes to an entrepreneur, then earn goodwill with peers as it helps find other partners to join in. At the same time, BoxGroup’s approach has kept it under the radar, without the billion-dollar paydays of large firms that can amass ownership in startups and then maintain it through to a sale or IPO.

Now raising its first outside capital ever, BoxGroup is looking to change all that with two $82.5 million funds—a BoxGroup IV early-stage fund and a debut opportunity fund. And with the new money, and its first-ever limited partners to answer to, Tisch, Rothenberg and third partner Nimi Katragadda face a new challenge: double down on winners more than before, while defying the trend in seed investment to take a more concentrated approach. It’s one they relish. “We’re confident we built the go-to seed fund here in New York. We think we have the capital now to scale it into the next phase,” Rothenberg says.

For a first-time true venture capital fund, BoxGroup’s history parallels the rise of New York tech. Its origins trace to when Tisch, 38, shifted gears after law school to try his hand at a startup, then joined a growth-stage private tech company in 2007 called InfoNXX (now kgb). With thousands of employees and a multi-billion-dollar valuation, InfoNXX had built a lucrative business automating and handling 411 calls. Hired there as a product manager, Tisch soon took over its research and development lab as head of internet, eventually building a service to tap into the social firehose of the then-new startup Twitter.

After personally investing in several startups, Tisch, a nontechnical self-described nerd, attended an angel investor boot camp at MIT. Bumping into David Cohen, a cofounder of the startup accelerator franchise Techstars, Tisch introduced himself and asked why the group hadn’t set up shop in New York. Six weeks, five trips to Cohen’s native Colorado and dozens of reference calls later, Tisch was tasked with launching the program there. “I have pressure because of what my grandfather and father, uncles and cousins all do,” Tisch says. “I had a choice of either go build my own reputation, my own success, or go try to live in a historical version of that.”

With Rothenberg, an ex-hedge fund analyst who’d joined Techstars days before its first class commenced, assisting, Tisch began mentoring entrepreneurs and investing more frequently in standouts he met in his spare time. Some, like ClassPass and PillPack, passed through the program. The culmination of the three classes they led was a demo day, the largest in the city’s tech scene to date, which filled 750 seats at the downtown concert venue Webster Hall and had a waitlist of West Coast investors that ran hundreds more. “New York wasn’t even in the conversation with San Francisco,” says Bowery Farming CEO Irving Fain, whose previous startup, CrowdTwist, presented (BoxGroup invested in both). “They generated so much enthusiasm and excitement. The people who came through were a reflection of the respect people had for them.”

The two investors built a reputation for their ability to speak freely. At PillPack, cofounder T.J. Parker says he texted constantly with Tisch. When PillPack sold for about $750 million in 2018, it was Tisch who introduced Parker to the banker who would guide the process. Tisch’s style was that of a sardonic lifelong New Yorker: full of real talk, unafraid to be wrong. “David pushes you—he keeps you on your toes,” says Payal Kadakia, founder and chairman of ClassPass. “He won’t let you take the comfortable way out.”

Tisch and Rothenberg left Techstars in 2012 to focus on the launch of BoxGroup full-time. With offices just off Union Square Park and more desks than their tiny team needed, BoxGroup became its own early flavor of co-working space, with companies like Ro, women’s reproductive care startup Lola and college jobs service WayUp rubbing shoulders at the same time. (One former Techstars intern, Zach Perret, turned down a job at BoxGroup to start a company; BoxGroup became one of the first investors in his fintech startup Plaid, now valued at $2.65 billion.) When CrowdTwist’s Fain launched his next venture, indoor farming company Bowery Farming, he worked out of BoxGroup for two years. “It was probably too long,” Fain says. “We had a farm and we could hide people there so it wasn’t so obvious.”

Established in New York and co-investing alongside known-quantity firms like First Round and Union Square Ventures, BoxGroup built a reputation through investments like those and GroupMe, Flatiron Health, Glossier, Harry’s, Oscar, Vine and Warby Parker, helping it find room in buzzy deals outside the city. Not everything panned out. One of BoxGroup’s early banner companies, Blue Apron, struggled in its 2017 IPO and trades at a fraction of what it was once valued by private investors. Another, Spring – an ecommerce startup formerly led by Tisch’s brother, Alan, raised $100 million before selling to ShopRunner for an undisclosed and reportedly much smaller amount. But plenty did, and not just in New York. In Silicon Valley, the firm scored early stakes in unicorns such as Airtable, Flexport and Stripe; in Austin, it backed RigUp, a marketplace for energy-sector contractors recently valued at $1.9 billion. “By building a brand in New York, that brand became portable to the rest of the country,” Tisch says. “I think it would’ve been harder to build that organically in the Valley. We sort of leapfrogged other funds that had been around for longer.”

BoxGroup’s team grew in small measures, too. One key hire was Greg Rosen, who spent three years there before moving west to Benchmark and then taking a job as a partner at Bedrock Capital in March. Katragadda, an ex-Googler, also joined in 2015 after working at Rough Draft Ventures, a student investor program, while at Harvard Business School. The Forbes Under 30 alumna was promoted to partner last year after investments in companies like health startups SmithRx and Notable Labs and 401(k) provider Guideline, which raised a $35 million Series C round led by Tiger Global in December. “We used to joke that David was the ‘Box’ and I was the ‘Group,’” Rothenberg says. “Nimi has brought us into spaces that I’d never thought about, and I still try not to think about,” Tisch quips.

But over the years, Tisch has also faced pressure from his colleagues to be louder and invest bigger. Rosen, in particular, questioned Tisch’s choice to dial back his public presence years ago. (Explains Tisch: “I sensed the narrative around tech changed. It didn’t feel authentic anymore to be loud.”) And Katragadda says a turning point was reached when Plaid, a company BoxGroup had known longer than any other investor, really took off, with BoxGroup’s own financial upside limited by its small stake.

Institutional investors have sniffed at BoxGroup for years. Typically they’ve told the firm the same thing: “We love you, you’re perfect, now change.” But against the trend of a rising number of seed-stage investment firms looking to make only a handful of high-conviction, high-ownership bets, BoxGroup’s partners prefer its basket approach. They reject the notion they’re following a “spray-and-pray” catch-all strategy. If BoxGroup were trying to invest in every New York startup, Tisch argues, it’d have done a bad job by missing out on Datadog, Peloton, Rent The Runway and WeWork. Instead, the firm says, by investing smaller sums, it can invest earlier than most, sometimes in little more than a founder and an idea, without being “intellectually dishonest.” “We wouldn’t be investing in all this if we didn’t think we could have material financial success,” Katragadda says.

So BoxGroup’s first group of outside investors say they want it to keep doing what they’re doing, with the opportunity fund as a compromise. The small group consists mostly of family offices like Willoughby Capital, billionaire hedge fund manager Daniel Och’s family office. There, president Morgan Rutman says, Tisch’s decision to have formal funds with measurable performance from BoxGroup’s beginning made it easier to assess its prospects: “He had the vision to do that early on, so 90% of what you’d do with outside investors, he’s already been doing.” And at TrueBridge Capital Partners, a firm that has backed VC shops like Founders Fund and Sequoia, investors spoke to dozens of founders before concluding that BoxGroup would have several paths to potential top-tier returns in the future. (Disclosure: TrueBridge partners with Forbes to provide data for its Midas and Next Billion-Dollar Startups lists.)

The performance BoxGroup will be hoping to maintain: realized returns of 2x the cash invested from its first fund, says Tisch, and performance tracking in the top quartile of funds for all its previous three funds, BoxGroup and its backers say. Asked about his funds’ unrealized positions  from its unicorn stable, Tisch replied: “We don’t like to count paper returns because they are just fluff until they get realized.”

Taking credit at all comes with some difficulty for Tisch. “We’ve had over 25 exits, and I don’t think we’ve been the headline on any of them. Even calling them ‘our’ companies is possessive,” he says. “That’s not who we want to be. That’s not what friends do.”



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