Strategy Session is a feature for Crunchbase News where we ask venture capital firms five questions about their investment strategies.
Subscribe to the Crunchbase Daily
Reaction’s mission is pretty simple: Improve a billion lives, within a decade, by democratizing technology that will change the world.
The venture capital fund, founded in 2019, is owned and operated by 150 founding partners and Stanford Business alumni in 45 countries who are entrepreneurs, investors and company leaders.
We spoke to Dan Matthies, co-founder and managing partner, about the fund’s beginnings, its mission and its future.
Part of that future is working on its $10 million fund, named W250 in honor of the room at Stanford where the idea was spawned. The fund launched in 2020, is exclusive to Stanford alumni and will target broad sectors, such as health, environment and anything that promotes world equity, Matthies said.
The fund has made six investments so far, including Ohio-based Genetesis, with technology that targets heart disease using bio-magnetic signals; Redwood City-based Mango Materials, focused on reducing plastic pollution; and Jumbotail, based in India, an organizer of the food and grocery ecosystem in that country through technology and announced a $14.2 million Series B round earlier this month.
What follows has been lightly edited for length and clarity.
How did the firm get its start?Dan Matthies, Reaction
Matthies: If we go back to the summer of 2019, 200 leaders met at Stanford. As you can imagine, these are very bright and accomplished leaders, but also very curious and very humble. We were there in the beating heart of innovation and were exploring a lot of new innovations, but at the same time, we also saw a huge problem with that.
Coming from all over the world, you realize that some of these companies have the potential to solve global issues, but they failed to do that because the entrepreneurs behind them just didn’t have the access, or the influence, or people in the markets they could impact most. The areas we focused on, like health problems, environmental problems, equity problems, were not just persisting, but were getting worse. So Reaction was founded to solve that problem.
Is this just for Stanford alums, or can others be involved?
Matthies: Not at all. We are global leaders invested in solving global problems, and part of that is capital. This is clearly a community strategy, but we believe the stronger the community becomes, the greater its ability to influence the outcomes — if you believe in Metcalfe’s Law that says a network is exponentially created by the number of members. So, for example, if you have two people, you have one connection, or if you have five people, 10 connections. Just imagine if you had thousands of global leaders united in democratizing technology, how much value they would create.
Why start this type of fund now?
Matthies: If you look at the path ahead, more innovations are coming now than in the previous 50 years. Because of the way technology has evolved, it can come from anywhere and can go anywhere to scale further and faster. We felt like a new VC approach was required to take that on.
What is your firm’s strategy on investment?
Matthies: We build all the classic processes of sourcing, evaluation and scale. We saw that most traditional VCs were sourcing from the same pond, but we are using our community to source from anywhere. For evaluating, we have people in the industry who we can consult throughout the world. The “Is it real?” test we have created for ourselves is: Unless we have five members in that industry who are able and committed to open doors and change the outcome, we won’t invest. We are not going to move forward unless we feel we have an advantage to bend the outcome in the right direction. If the partners are in the network, the stronger it becomes, the more value we can create to scale the company.
What’s it like starting from scratch?
Matthies: Exciting! I spent the first five months listening about “why do you think we should do this,” “how should we invest,” “what stage should we invest,” “what will allow you to sleep at night?” You pick up a lot of great strategies, which form the investment process and thesis, but also the underlying value we create that may be even greater than the returns, of meaningful relationships across the group; continuing to learn and the pride of being on the inside of innovations that are truly changing the world.
Illustration: Dom Guzman