Another great article as always. I’d like to add a few other perspectives.
The cards are generally stacked against first time fund managers. I can speak to this as someone who ran a small VC fund but decided not to raise Fund 2:
1) They lack sophisticated legal counsel and fail to negotiate special terms that I often see larger funds ask for such as pro-rata, ROFRs and warrants.
2) Larger funds have the infrastructure to keep a tab on their portfolio and often can take board seats to ensure their interests are protected. The ability to follow-on in a meaningful way can change the trajectory of a portfolio company
3) Smaller funds often raise from friends / high net worth individuals. To raise a good fund 2, you need institutional LP relationships and family offices who can keep investing in you over future vintages and write a few $M minimum.
The last point was the main reason we decided not to raise Fund 2. Our LP base were industry experts (for our proptech fund), in many cases they could barely write $100K and it was absolutely exhausting having to work so hard and take so many meetings for such a small check. You need 100 of committed LPs for a $10M fund if you assume a $100K check - that’s a lot of relationships to manage!
Another great article as always. I’d like to add a few other perspectives.
The cards are generally stacked against first time fund managers. I can speak to this as someone who ran a small VC fund but decided not to raise Fund 2:
1) They lack sophisticated legal counsel and fail to negotiate special terms that I often see larger funds ask for such as pro-rata, ROFRs and warrants.
2) Larger funds have the infrastructure to keep a tab on their portfolio and often can take board seats to ensure their interests are protected. The ability to follow-on in a meaningful way can change the trajectory of a portfolio company
3) Smaller funds often raise from friends / high net worth individuals. To raise a good fund 2, you need institutional LP relationships and family offices who can keep investing in you over future vintages and write a few $M minimum.
The last point was the main reason we decided not to raise Fund 2. Our LP base were industry experts (for our proptech fund), in many cases they could barely write $100K and it was absolutely exhausting having to work so hard and take so many meetings for such a small check. You need 100 of committed LPs for a $10M fund if you assume a $100K check - that’s a lot of relationships to manage!