Start a fund? Not what you think
- I’m a big fan of what Adeo is doing at the Founder Institute. He giving people the platform to learn from great mentors and builds up confidence to actually get out there and start something. I’ve invested in one FI.CO grad Breezy and feel that the team was well prepared and ahead of others in the early early stage. Thanks Adeo and FI, however……..On building a fund I’m going to need to completely disagree. with the following tweet:
- “It won’t get much easier to launch a new #venturecapital fund than it is right now”- @adeoressi t.co/DLzoETlh #vc
- It’s not easy to launch a venture fund PERIOD. it may be easy to talk some friends into pooling together $10M-$30M and be a “fund”, but once you have OPM (other people’s money) the game changes and the risk profile changes. Look at the economics on a fund of this size (BTW it’s small). How are the managers going to get compensated (flat fee or no fee) it’s small and doesn’t give the “fund” much operating capital to actually carry on day-to-day business anyway. As an angel it’s different - it’s your money do with it what you please. When you have a fiduciary responsibility to people other than you - the game changes.
- This comment is also a bit off when you think about the venture ecosystem.
- “The solution to the structural problem in the #startup economy is simple: we need more venture funds”- @adeoressi t.co/DLzoETlh
- “9/10 high-quality angel-funded #startups face death because theres no Series A money to expand”- @adeoressi t.co/DLzoETlh
- While I overall agree that there are great companies working on very difficult problems there needs to be a Darwinian effect to the market. The strong survive and adding new funds will not help the situation it will only hurt companies that need to be shut down or merged as a feature into larger organizations (this creates a bubble). If you’re focusing on solving a business need that has value - you should have revenue traction a Series A for expanding this (Startup Genome has great research here) is an entirely different conversation.
- “It’s a myth that u are going to raise $500k & build a billion dollar company”- @msuster at the #FounderShowcase t.co/x3UYdzZN
- Getting back to the economics of a fund. I think @msuster has it absolutely right a big win won’t come from a small seed investment or even a decent Series A. From an economics of a fund perspective you need follow on capital to make real returns and having a small % ownership doesn’t give you chips at the table. Getting crammed down on the cap table hurts your returns and without a large amount of capital you’ll be directly impacted. This means you need to raise institutional capital to make any meaningful impact on the ecosystem.
- VIA LYRoush Need to extend progs like OH Capital Fund bc it’s difficult for even best VCs to raise $ from over-allocated institutional funds
- Raising capital from institutional funds is not trivial. You need a proven track record and they HATE risk. I’ve spoken to the two largest pension funds in America and both are cutting back “risk based allocation” by as much as 50%. One even said they’d love to see it goto ZERO. So what does this mean? You the new guy on the block want to raise a small fund, say $100M, and are now competing with established funds with track records in a market that is shrinking, because of the risk off bet.My suggestion is not to start a fund, but continue the building of an active angel community who can fund companies well into the Series A or B round giving them room to grow and breathe. Continue supporting Angel List and let’s build a network of highly qualified people that do this because they love it not because it’s their job.
Posted 2 months ago
