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From Principal to Founder: Building a Sector-Focused Venture Firm in an Era of Generalists

The conventional wisdom in venture capital is clear: don’t leave a prestigious firm unless you’re a partner. Don’t start a new fund without that coveted partner title on your resume. And definitely don’t try to build a sector-focused firm when most institutional investors want generalist exposure. But in a recent episode of Category Visionaries, Dan Rosen shares how he broke all these rules to build Commerce Ventures, challenging the traditional playbook for launching a venture firm.

Breaking the Established Rules

“Super brutal. Like really not fun at all,” Dan describes his experience raising his first fund in 2012. As a principal rather than a partner at his previous firm, he faced significant skepticism. But the real challenge came from his conviction about building a sector-focused firm: “My strategy thus didn’t really fit for almost any institutional investor. And the size of the first fund, the target was so small that again, almost no institutional investor could invest in me.”

Instead of giving up, Dan took an unconventional approach. He turned to individuals and corporate investors, building a network of sector-specific expertise that would later become one of his firm’s key differentiators. This early decision to embrace sector focus, despite its challenges, laid the foundation for Commerce Ventures’ unique position in the market.

Building a Different Kind of Venture Firm

Today, Commerce Ventures manages about $300 million in assets and has invested in over 100 companies. But what sets them apart isn’t the numbers – it’s their deeply sector-focused approach to investing in retail and financial services technology.

“We’re distinctly knowledgeable in the sector we’re focused on, so being participants in the financial services ecosystem rather than analysts of it or observers of it,” Dan explains. This isn’t just marketing speak – it’s built into the firm’s DNA, from their sources of capital to their network of advisors.

The firm has structured itself around this sector focus in a unique way. As Dan describes, “We’ve structured the whole firm around this sector of focus, and it’s everything from where we source our capital, our investors’ capital, which includes large strategic corporations, Fortune 500 companies that are in our sector, to very strategic individuals.”

The Power of Thematic Investing

Commerce Ventures has developed a distinctive approach to identifying investment opportunities. Rather than chasing trending keywords or hot sectors, they dig deep into overlooked problems in their focus areas. As Dan explains, “We’re asking our partners, these large corporates, these individuals, and even looking at trends in startups, what are the big problems that nobody’s paying attention to? What are the opportunities that if you brought a new solution to market, you could unlock?”

This approach often leads them to investigate what Dan calls “super boring” opportunities that other firms might overlook. “We just went through a pretty extensive analysis of next generation loan servicing systems,” he shares, highlighting how they’re willing to dive deep into unsexy but crucial infrastructure problems.

Redefining the Role of a VC

One of the most refreshing aspects of Dan’s perspective is his candid assessment of what it means to be a venture capitalist today. “Historically, I think the belief was that the VC job was a really cushy, fun lifestyle job… But I would describe kind of venture capital as primarily a sales job.”

This sales-oriented mindset shapes how Commerce Ventures approaches its role. They’re not just writing checks – they’re constantly working to prove their value to founders who have increasingly diverse options for capital. As Dan puts it, “You’re really out there trying to pitch dollars to founders who oftentimes have, especially the best ones, have many other sources of dollars they could choose.”

Looking Forward

Despite the challenges and evolution of the venture capital industry, Dan remains excited about the opportunities ahead. The firm is now investing out of its fourth fund, and their sector-focused approach has proven prescient as more founders and investors recognize the value of specialized expertise.

The journey of Commerce Ventures offers valuable lessons for anyone looking to challenge conventional wisdom in their industry. Sometimes, what seems like a limitation – in this case, being sector-focused in a generalist world – can become your greatest strength if you’re willing to fully embrace it and build everything around that core conviction.

For founders and operators in the B2B tech space, the story illustrates the power of turning conventional constraints into competitive advantages. It’s not about following the established playbook – it’s about writing your own, even when that means taking the harder path initially. As Dan’s experience shows, sometimes the best opportunities lie in the spaces that others consider too niche or too boring to pursue.