By: Ben Freeberg

Ranch VC is a fund that acts as a proxy for the change Howie Diamond, Managing Director, wants to make in the world. Ranch invests in teams who are building things that are materially useful to society as well as creating consequential results. Howie enjoys working closely with his 17 portfolio companies in a variety of ways and prides himself on being a value add investor.

Ranch’s Investment Thesis

Let’s do some quick math.  Approximately $60 Billion goes into venture each year. On average, 6% of that capital reflects what’s considered an “outsized” return where investors would get a 10x multiple on their capital. For simplicity, let’s say the remainder of the $60 Billion represents a modest 2x-3x, or more likely, a zero return on investors’ original capital. Amazingly, that 6% of outsized returns is representative of 60% of total returns for the entire asset class. These metrics reinforce that the power laws are real and highlight how realized gains are typically brought to bear within venture capital.  

Using this logic, Ranch put together a diversified portfolio for Fund I, which does not maximize for a lot of swings and misses, rather positions itself for hitting a grand slam when the bat hits the ball. Howie believes that since a relatively small number of investments generates a majority of the returns, Ranch should operate under a business model that works within that economic framework.

Ranch VC invests in pre-Series A, deals typically oscillating between a $4-6 million or a $10-15 million valuation cap depending on stage, market and financial traction. The team at Ranch believes there’s an asymmetrical relationship between risk and valuations as companies grow. When venture firms invest in companies valued at $4-6 million, most of them haven’t found their product market fit yet or, in some instances, even released a minimum viable product into the market. The risk for the investor is super high and cost of investment capital for the company is also high because the valuations are typically lower.

As companies mature, some begin to scale and start generating real revenues, which can mitigate the investment risk. This typically happens in a Bridge or post-Seed round, where Howie believes risk declines exponentially, but valuation increases linearly. This is where the asymmetry lies and has become a sweet spot for Ranch. At this stage there are real metrics and analytics to evaluate and they can dig into MRR and ARR numbers to help predict future performance.

On the subject of ownership, Fred Wilson once stated dilution becomes nebulous as entrepreneurs go through the early VC financing rounds because of the debt vehicles that have become standard practice and policy. Ranch agrees that there is a cloudiness and opaqueness that goes into convertible notes. The whole point of notes and safes was to make it cost effective and faster for the entrepreneurs, but there is complexity down the pipeline as the debt converts and there is a lot of mis-management of expectations. Also, today you can do a priced round for less than $5k, therefore, Ranch prefers to do priced bridge rounds.

How does Ranch’s Portfolio Fit into their Thesis?

Imperfect Produce focuses on the 20% of fruits and vegetables that fall short of cosmetic and other high quality standards of grocery stores in the U.S. These blemished or misshaped fruits and vegetables can’t be sold in stores. Today, the common practice is for farmers to donate it or throw it away which is neither time nor cost effective. Further, this process is a logistical nightmare. Imperfect’s team is built with logistically advanced operators whose mission is to find a home for these “ugly” fruits and veggies and help solve the global food waste problem through a direct-to-consumer subscription service on the backend. This is an entirely new vertical creating abundance and consequential results for the world.

With expansion into LA this year and 800% growth recorded in 2016, Ranch is excited to help Imperfect execute against their mission. Ranch has assisted with branding, content creation, public relations, recruiting, PR and storytelling.  Working closely with their CMO to fine tune the creative aspects of each business sector.

Quip, a subscription-based oral care platform for consumers, is one of the fastest growing companies likely to raise a large, qualified round of funding, according to a recent Mattermark study. If you haven’t seen their ads yet on Facebook, they are essentially a Dollar Shave Club for oral care promoting dental health and wellness.  Their products imbue an “Apple-esque” style in terms of design and quality, and they are quite affordable. Quip’s direct to consumer model is also designed to simplify compliance for dental patients. Ranch invested in the Bridge round of this company that already amassed more than 100k subscribers.

Ranch has assisted management in a variety of areas. One example was after getting to know the founders and culture of the company well enough, Howie was able to help Quip broker a deal with The Muse, working as an earned media recruiting platform where they traditionally help Fortune 500 companies recruit top talent.  

Ranch’s portfolio is rounded out with 15 other startups that have high upper bound impact potential.  Most of whom live right on the edge of the risk/reward curve, which is exactly where Howie and the Ranch team like to play.  


Thank you to Howie Diamond and the Ranch VC team for assisting us with this post.