What I Tell All New VCs About Their First Funds
No Need To “Grab a Coffee and Pick My Brain” Because Here’s What I’d Say…
A lot of new venture funds out there these days. People sometimes ask me, “wow, is there still room for new investors?” and my answer is that generally while a particular zip code or two might feel ‘overfunded’ at a moment in time, that early stage entrepreneurism is still UNDERFUNDED globally by at least an order of magnitude. So yes, there is definitely room for new investors, especially if you are going to execute at least one of the two following competitive advantages:
- Fund people/ideas ahead of consensus — that is, find founders and markets that aren’t currently being chased by the mainstream and get to conviction ahead of the pack.
- Be more helpful than the folks on cap tables today who overpromise and underdeliver — every cap table I’m on has some percentage of allocation that provided zero value after the investment. If you can be more valuable than that, I’d love to bring you on to the cap table of the next seed round we lead.
So besides those points, here are three things I generally advise folks raising their first funds…
A. It’s Not Always Worth Doing Second and Third Closes: I generally believe new investors underestimate the challenge of fundraising and investing at the same time. We had the incredible privilege to raise our first fund quickly and get focused on putting it to work, but the history of new managers not hitting their hard cap and just deciding to show proof instead is longer than you’d think. There are a handful of notable and quite successful folks who back in the day just closed what they could and got to work. Once they had momentum they raised a next fund 12–18 months later (vs the ‘normal 24–36 month cycle). If you’re targeting, let’s say, a $20m fund and can close on $10–12m but are really struggling to fill the rest, just don’t worry about it. Close the fun and get to work. You can invest relatively less per deal or go back to market sooner with evidence of your momentum in hand.
B. Take Some Risks, Even If They Deviate From Your Deck: Sometimes I see new VCs get over-concerned about deviating from the strategy they told their LPs they’d be executing. I’m a…
