I first met Molly Fowler about six years ago, when I spoke to a class of Dorm Room Fund’s student investors. Last week, her firm announced a new $50 million fund. That is ~4x the size of the $12.5 million fund they raised after spinning out of First Round Capital, and roughly 30% of the new capital came from DRF alumni or the firms that employ them.
Most of the talk in venture right now is about megafunds and later-stage companies. Molly, DRF’s Founding General Partner, runs a very different strategy. She writes small first checks into 75 to 100 companies per fund, and college students cast the votes. I wanted to hear how she sold that to LPs and what the bigger fund changes.
TL;DR
- Why a fund that makes 75 to 100 investments says it is nowhere near spray and pray
- The two kinds of LPs Molly met while fundraising
- How half the initial capital runs through students and the other half backs DRF alumni
- The anti-portfolio miss that came down to a scheduling mix-up
- What a 500-person alumni network means for the firm’s next few years
Watch the full conversation here 👇
Big Tech Shifts Favor First-Time Builders
Dorm Room Fund started in 2012 inside First Round Capital. Molly says the idea was Josh Kopelman’s, and that cloud computing is what made it possible.
“You could launch an AWS instance in your dorm room in your underpants and start a software business.”
Several First Round partners had started companies as students. They saw campuses as a place where founders get unfair advantages, including access to talent, time to build, and early exposure to new technology. What nobody had was a good way to tell which student founders were serious. First Round’s answer was to pick a handful of talented students, train them, and let them make the decisions together. Students, Molly said, know who is good and who is “dinking around on the pitch competition circuit.”
There was also a funding gap to fill. In 2012, pre-seed was not yet a category, and DRF’s small checks were meant to help founders de-risk an idea before seed money was available.
DRF ran three funds inside First Round, each a carve-out of under $3 million. In 2021, the team concluded it needed more capital to keep pace.
“As there are these new technological changes, it really advantages first-time builders… You’d rather have somebody who’s at the top of their game on LLMs in 2017 building your AI tool as opposed to somebody who’s just learning that stuff for the first time.”
DRF went independent with First Round’s blessing, brought the firm along as an early LP, and raised its first independent fund in 2021. The new $50 million fund is its second, and Molly says the team is already about a year into deploying it. The program now covers roughly 30 partner campuses across the US and Canada, with about 60 student investors a year.
75 to 100 Checks, and the LPs Who Get It
DRF is still a pre-seed specialist that likes to be the first money on the cap table. At First Round, the checks were $20,000 notes, which Molly said was “not quite enough to get the best founders out of bed.” DRF raised its check size after the spinout and is raising it slightly again with this fund. The number of investments has stayed between 75 and 100 per fund, and she expects this one to land closer to 75 or 80. By her estimate, that is about twice what a firm like First Round does and a fraction of one YC batch.
“People hear 75 or 100 and say, oh, is it a spray and pray? And it’s like, no, absolutely not… that’s one percent of what we see.”
DRF sizes its checks with dilution in mind, and Molly gives founders the same advice. “Take as much as you need in the really early days, but not more, because the minute you have the sparkle of something, it’s going to be much easier to raise much less dilutive capital.”
The capital is only part of the offer. Molly wants DRF to be the trusted advisor who helps first-time founders get the early basics right. When a company is ready for a large institutional round, DRF alumni who are now partners at top funds help make that happen. She called this one of the firm’s “power alleys.”
I asked how a portfolio this broad went over with LPs, since many of them want concentrated managers.
“There are two kinds of LPs in the world. There’s ones that feel very religiously about, you know, you’re a lead investor, you own at least 10% in all of your investments… And then there’s folks that are open to and interested in other models.”
Molly has friends in the first camp who congratulate her on the results and tell her to call when DRF is writing lead checks. She focused on LPs who understand that, as she put it, “the math maths” with this strategy. “Track record and wins can speak a lot louder than spreadsheets and models,” she said, and DRF had the Cursor success in hand when it went out to raise.
The numbers released with the raise show the rest of that track record. DRF has backed more than 339 companies, which have raised over $14 billion in follow-on capital. Eight are unicorns, including Shield AI at roughly $13 billion and Vulcan Technologies at roughly $2.5 billion. More than 30 are valued above $300 million.
Two things are different in this fund. First, reserves are larger. DRF takes its pro rata at seed and invests at Series A when it has the cash, and Molly said following on after Series B doesn’t make much sense for the firm. Second, the new LP base is more active in directs and secondaries. She plans to run more SPVs so those LPs can co-invest once a company has outgrown the main fund.
Half Through Students, Half to Alumni
About half of DRF’s initial investment capital goes through the student process. It is run by four regional teams of about 15 students each, a mix of undergrads, MBAs, and PhDs. A founder meets two team members and then pitches the full regional team. The students do diligence, vote, and the deal goes to Molly for the final steps.
Other firms have started campus programs in recent years. Molly said there is a notable difference between those programs and DRF.
“This is our core strategy. We’re not just doing this as a window dressing marketing exercise or a call option.”
The other half is reserved for alumni of the investing team. DRF had always backed team members who started companies while in school, but they became off limits once they graduated. Molly called that “really silly” and changed it in the first independent fund. Her data, she said, shows that “spending that time as an investor makes you a better founder.” She invests that capital with her partner Madison Jacox, and the two of them also make the pro rata decisions.
Cursor is the best-known result. Michael Truell was on the investing team as an MIT undergrad. He and Molly stayed in touch, and DRF helped bring his pre-seed round together in 2022. SpaceX acquired Cursor this year for a reported $60 billion. Metis, another company founded by a DRF alum, sold to DoorDash for more than $100 million in March. At least 118 DRF alumni have founded companies.
When I asked for an example beyond Cursor, Molly picked Dandy. Co-founder Toni Oloko was on the DRF team as a Penn undergrad. When DRF invested, he and his co-founder had found a manufacturing site in Pakistan that could make clear aligners for about a tenth of the usual cost. Molly admits DRF sometimes backs an idea that “still has a little bit of hair on it” because the team knows the founder so well, and this was one of those bets. DRF stayed with the company through several pivots. Dandy now sells to the dental industry, and Molly said it is worth “billions and billions.”
“We are able to take what looks on paper like a slightly riskier bet than the average pre-seed fund, but that’s because we get to know these people so well.”
The Anti-Portfolio
I asked what DRF has missed. “So much,” Molly said. The first big one was Gopuff, which had a completely different business model when DRF saw it. The one that pains her most is Mercor. The team was scheduled to pitch DRF and the meeting never happened.
“I literally think it was an administrative error and a scheduling problem.”
DRF has also passed on companies on purpose, because students knew something about the founder. Molly wouldn’t name them on the record. “We look like ding-dongs for the first 18 or 24 months, and then usually stuff has a way of blowing up, and then all of a sudden we look like geniuses.”
She tries not to dwell on calls like these, and she credits her mentor Bill Trenchard at First Round for that. DRF was once deciding whether to sell some of its stake in a company that was doing well. Trenchard told her it was the right thing to do, and then described the two ways it could look afterward. “There’s a world in which you look like a genius because this company falls off a cliff. And then there’s a world in which you look like an idiot because it 10Xs.” His advice was to make the decision and move on. Molly calls it “the Tao of Bill.”
500 Alumni and What Comes Next
The fund was oversubscribed, and Molly said the extra capital lets DRF invest in building the firm as well as in founders.
Part of that is geography. DRF’s investing teams only went national in 2020. Since then, it has added partners at Waterloo, UT, Georgia Tech, and Emory, which she said have been fruitful, and it is still building its presence in the Midwest, Texas, and the Mountain West.
She is most excited about the alumni community. About 500 people have now served on the investing team, each for a multi-year commitment with at least two years of training. Many are now founders, angel investors, or professional investors at firms like Sequoia, a16z, and Lightspeed. After the New York Times story ran, alumni went online to tell their networks that DRF was the best thing they did in school.
“I think there’s a hunger and desire from that community to be more a part of what we do.”
Investing in alumni after graduation was phase one. Molly is now looking for more ways to bring them back into DRF’s investing, and she pointed to the deal flow they already have.
Molly also explains why 2x the investments of a typical seed fund still means saying no to 99% of what DRF sees, and why she describes her First Round years as riding the bench on the 2009 Yankees. Watch it above.
