SeedFolio, a new San Diego-based seed-stage venture capital firm launched in March 2021, is already well on its way to raising its first $20 million. The company, headed by software industry vet Joe Gatto, has attracted over $16 million in its first nine months to its SeedFolio Fund 2.
Gatto’s private SeedFolio Fund 1 already has made direct investments in more than 45 companies, including Lubris BioPharma, a Massachusetts-based firm developing recombinant human lubricin for the treatment of dry eye, osteoarthritis and other age and inflammation-related conditions.
Gatto said this week that the SeedFolio Fund 2 remains open to new Limited Partners. “That window will close in mid-February,” he added.
“With the SeedFolio Fund 2, our strategy is to invest in at least 50 companies over five years,” Gatto said. “We are on track, having already made 13 investments.”
LPs as Advisors
While Gatto is the fund’s general partner, many of his limited partners serve in advisory roles.
“I’m a solo decision maker but have an incredible set of advisors and LPs that bring deep expertise in many domains,” Gatto said this week. “We have MDs across many specialties who are in the clinic or hospital every day and are great for validating — or invalidating — the clinical usefulness of a new therapy or diagnostic. Our advisory team also includes patent attorneys, PhDs in biochemistry and seasoned science and business executives from private and public biotech companies.”
Some recent examples of investments Gatto’s SeedFolio Fund 2 has made into San Diego-based startups include eGlint, a biotech leveraging aptamers for rapid, low-cost clinical diagnostics.
eGlint was recently launched by founders of Synthorx, which was acquired for $2.5 billion. SeedFolio led the company’s seed financing round last month.
Biotech Enkefalos Biosciences and Ivy Energy, a software company enabling landlords to profitably install solar, also are among the San Diego-based companies SeedFolio has invested in.
“We aim for a very high level of transparency and communication,” Gatto said. “This includes detailed (10+ page) deal memos to LPs for every investment we make — and open, candid feedback to CEOs who we find not yet ready for our investment.”
“I gave one company’s CEO and board two pages of gentle but firm feedback about why I thought the CEO should be the chief science officer and not CEO,” Gatto said. “One of the board members (who I didn’t know and had spoken with only once by phone) appreciated my candid feedback so much that he ended up investing in SeedFolio.”
Denis Malyshev, co-founder of eGlint, said when he met Gatto a few years ago, “I immediately noticed his genuine curiosity, intellect and strong business acumen.”
“When our newly formed eGlint received our first not very favorable term sheet, I reached out to Joe to get his opinion and advice on how to proceed,” Malyshev added. “Within a few hours, Joe sent us a term sheet with an offer of investment from SeedFolio that was straightforward and fair to both parties. We proceeded with that offer, and SeedFolio proceeded to lead our $2.4 million seed financing.”
$100 Million Exit
Gatto got his start in software. From 1997 to 2008, he built StarMine, a software company known for “objectively measuring the performance of Wall Street analysts” and developing profitable stock-ranking analytics.
After he sold StarMine to Thomson Reuters (now Refinitiv) for a $100 million and helped the company integrate post-acquisition, Gatto was Apartment Solar Finance’s CEO – or as he liked to call himself “chief economic orchestrator.”
In 2017, Gatto turned his full attention to the venture capital arena, joining Tech Coast Angels as an investor – and getting a crash-course education in early-stage investing.
Two years later, Gatto also became active in Stanford Angels and Entrepreneurs of Southern California, which is building Stanford’s startup community in San Diego and whose membership is open to Stanford alums who are accredited investors.
Gatto, who has a master’s degree in engineering from Stanford, today invests primarily in young Life Sciences companies — which seems counter-intuitive for a guy who built his reputation and fortune with a software company.
“Joe taught himself about Life Sciences and he’s making some great early-stage seed investments in the category,” said Mike Krenn, CEO of Connect/SDVG (San Diego Venture Group).
“Joe is very much a left-brain guy and it’s pretty amazing how he’s educated himself,” Krenn added. “His due diligence packages are legendary.”
The goal of SeedFolio is nothing if not ambitious: “Conquering disease and cleaning the planet.”
“We relentlessly source, in Southern California and nationwide, innovative, early-stage companies with high potential of game-changing, profitable impact in health and longevity (therapeutics, diagnostics, medical devices, digital health) and other important human problems,” Gatto said.
General Partner: Joe Gatto
Headquarters: San Diego
Fund Focus: Life Science
Notable: SeedFolio’s business process includes seven stages: source, screen, analyze, quantify, verify, invest and support.