Recently attended the Upfront Summit, an LA-area tech event put on by Upfront Ventures, which also serves as their annual meeting for LPs to get updated on the fund’s performance. As we approach Homebrew’s one year anniversary we’ll do a smaller scale meeting with our investors in San Francisco. Part of our presentation will be portfolio financials, which, because we’re relatively new, aren’t exceptionally volatile (LP speak: most of our investments are still carried at original value since no additional fundraising has occurred).
During this past year I’ve seen many new firms get created and seem to always have a few friends who are in the process of considering VC. Sometimes it feels like it’s never been easier to become a VC but never harder to stay one. There’s a influx of capital to back new funds:
- crowding funding via AngelList syndicates
- high net worth individuals
- family offices
- strategic investors (including corporates)
- other venture/private equity shops
- traditional institutional LPs such as fund of funds, endowments, foundations, sovereign wealth funds (our investors)
The result has been many new managers, many new funds. Not all will be in business five to 10 years from now.
Venture funds are like startups that play out in slow motion because we raise funding every 30-36 months, compared to 12-18 month cycles for an operating company. First fund is like a seed round – it’s based on pitch and reputation. Second fund is like an A round – momentum and beginning of traction. Third fund is the B round – metrics, results. That’s when new funds tend to hit a wall.
We’ve had a strong first year but it would be hubris to suggest I can tell you what our returns look like just yet. I know the founders we’re seeing are strong enough that a great fund could be constructed on top of the opportunities presented, so that feels great.
But this is a hard job. Sure, not coal miner hard, not startup founder hard. And it’s still an amazing opportunity to invest other people’s money without putting all of your own at risk (we are investors in Homebrew personally so there’s skin in the game). But seed venture, at least the way we play it, isn’t a bunch of smiles, $50k checks in hot deals and parties. It’s being a partner of conviction to an entrepreneur and working with them for several years. Succeeding with them but getting paid last.
It’s not a lifestyle job. And I love it.