Summary:

Neo Innovation, a web development and product design firm, has created an investment fund targeting startups that demonstrate an awareness and understanding of the “Lean Startup” principles.

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Neo Innovation, a product design and web development company built on the ‘Lean Startup’ principles promoted by serial entrepreneur and author Eric Ries, is launching a new fund focused on investing in companies committed to the same philosophy.

On Saturday at the SXSW Interactive conference in Austin, the company is set to announce the creation of a $3-million fund that founder Ian McFarland said is just the first stage of what they plan to be a $30 million fund over the next seven years.

“We want to apply lean principles to building our fund,” said McFarland. “For the first year, we’re keeping it as a smaller experiment… We want to have a great track record this year and [then grow].”

The fund is aiming to do about ten investments, with none exceeding $500,000, and it plans to co-invest with others, McFarland said. He added that portfolio companies stand to benefit from Neo’s deep understanding of the lean startup philosophy, as well as its connection to a global community of lean developers and product managers. Ries himself is the company’s General Partner and Joi Ito, director of the MIT Media Lab, is Chairman.

While the company has a particular familiarity with the social space because a few members formerly worked at Friendster, McFarland said it will look to invest in startups across different verticals. What matters is that the startup demonstrates an awareness and understanding of lean startup principles, he said.

A year ago at SXSW, the company, a subsidiary of the Japanese company Digital Garage (which is providing financial support for the new fund), launched as New Context. In November, it changed its name to Neo and announced a rebranding. At the time, McFarland told my colleague Eliza Kern, “We’re trying to establish the global brand in the lean startup space.”

As Eliza reported, in the past year, Neo has purchased several startups to build the company, including Cubox, a Ruby on Rails development team led by Evan Henshaw-Plath, who was the lead architect at Odeo, which later became Twitter; New York-based Proof Innovation Labs; Ruby on Rails software company EdgeCase; and Pivotal Lab’s Singapore branch.

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