Insights Accelerator Alumni

Meet the Funds from Cohort 5

Watch the full ‘Meet the Funds’ session below and read the key takeaways / learnings from the fund managers in Cohort 5.

VC Lab hosted a conversation about launching enduring venture capital firms with fund managers in Cohort 5 of the free venture accelerator. In this interactive session on the 13th of January, fund managers discussed their journeys to launching their VC firms and the fulfillment of inciting positive change at scale in their domains through their venture firms. The GPs also discussed their core driving theses and how VC Lab is helping to power the formation of their respective firms.


Key Takeaways

On launching a VC firm:

The panelists highlight their newfound international community at VC Lab. Launching a VC firm can initially be daunting; the Cohort 5 fund managers share the benefits of having a global set of peers to discuss their ventures, learn and share the journey with. 

They also share their experiences in working within a cohort structure and note the benefits of the peer support system when combined with expert guidance from the program. Important to note is the program carefully places firms in groups sorted by region and domain relevancy which can bolster fund formation efforts, especially in emerging markets and niche verticles.

On evaluating deal-flow:

Paolo emphasizes that deal-flow can be a part of your ‘secret sauce,’ which is a component of your thesis that highlights why you are the right person for launching your fund. Refer to VC Lab’s guide to learn ‘How to Determine Your Secret Sauce’ for more information. 

Some of our panelists such as Neeraj run accelerator programs based on their domain expertise. He explains that this helps them attract excellent deal flow in their region and enables them to evaluate the quality of deals. 

The GPs explain that to attract excellent deal flow, the fund managers may want to bring something of value to the table. They suggest that it does not necessarily have to be an MBA or vast sums of capital. For example, the panel agrees that you can invest your time with founders and look to leverage your network to add value too. 

On team-building:

Biola remarks on her journey to meeting her partner and suggests that teams in a VC fund work best when individuals’ skillsets and personalities complement each other. 

Additionally, the panel offers additional avenues and processes by which aspiring fund managers can meet like-minded individuals and potential partners. They suggest that those looking to launch a VC firm may want to be very active in their ecosystem by finding mentors, co-investing and attending demo days. They believe that by doing so you can gradually build your network in your ecosystem. 

Read more on building teams in venture capital. Refer to VC Lab’s guide on ‘How to Build a Venture Team’ for more information.

On going full time:

Venture capital is a long journey that requires a hefty commitment. Note that while the average marriage in the US lasts around eight years, most venture funds have a ten-year time horizon. Our panelists point out that when thinking about going full-time, new managers consider the long-term dedication the profession necessitates. 

They also highlight that potential LPs may have reservations about investing in new fund managers if they are not wholly committed to the firm. The panel points out that founders may also not look too keenly if fund managers are not allocating their entire schedule to the VC firm. They express that if this is the case when starting, you look to align your other activities with your fund thesis and make sure they are complementary to each other. 

On time commitments: 

Forming a fund takes a lot of time and mental fortitude; first, it may be best if you are prepared to commit the effort it takes to launch your fund. The VC Lab program assists general partners in securing capital commitments to complete a first close on a new venture capital fund, and as Nicolas points out, this initially requires at least 25 hours per week’s worth of work. 

Secondly, the panel suggests, with regard to your time commitments, it can be very beneficial to constantly strive to perfect your thesis and pitch, while taking in feedback from limited partners and the program. To do this well, our panelists think one has to be passionate about their cause and be prepared to commit help founders whenever they call. Furthermore, they state that having this passion is the foundation that can help you launch your fund and is something you can fall back on when you face obstacles. 

On the Mensarious Oath: 

The Mensarious Oath is an ethical code of conduct for venture capitalists and is pledged by all VC Lab attendees. Our panelist Silvia, an impact investor and vocal champion for women and Latino entrepreneurs, explains that she was drawn to VC Lab and the ‘Mensarious Oath’ due to an alignment in values. 

She also states that impact and return on investment are not necessarily mutually exclusive. Silvia highlights that her fund’s thesis is in line with the Mensarious Oath and she has always sought to activate her and other women’s capital to drive the change she wants to see in the world. She emphasizes that women investors are statistically twice as likely to invest in women entrepreneurs and outlines her desire to make positive changes by giving more women access to capital. 

On sourcing ethical capital: 

VC Lab is a vocal advocate for transparency within VC, as are the fund managers in our accelerator program. The panelists highlight the importance of value alignment when picking LPs for VC funds. They note that can be important to ensure that LPs uphold the values and mission of the firm and entrepreneurs they invest in. To lay the groundwork for a fruitful long-term relationship, fund managers and entrepreneurs may want to be ready to have conversations on the alignment of values with limited partners.

It can be beneficial for fund managers to appreciate the long-term nature of venture capital when launching their funds and partnering with LPs. Taking prudent steps to ensure capital from LPs is ‘ethical’ can help convey the values, mission, and brand of the VC firm in the long run. 

VC Lab runs Genesis, the four-month accelerator for venture capital firms and venture builders.

Cohort 8 starts in June and will help participants from around the world close on capital and start investing by October of 2022.

Learn more and apply here


Top 5 Tips to Launch a VC Firm in 2022

In this AMA, we meet the funds in Cohort 5 of VC Lab, who share their experiences in launching their dream VC firms with VC Lab. Our panelists give prudent advice to those looking to become GPs, and we also open up the floor to questions to get a better view into the minutia of venture firm building.

Watch the full interview with VC Lab Cohort 5 Fund Managers below.

The diverse panel of fund managers have domain expertise spanning from FemTech to Investment Banking as well as extensive regional experiences across Africa, Europe, the Americas, and Asia. All of our panelists are passionate about VC and are advocates in promoting their local ecosystem and particular sectors of focus.

The Panel:

Developing a winning thesis:

Developing a compelling thesis is important when launching a VC fund. In their theses, aspiring managers should think about how they can gain outscaled returns in this competitive environment and implement a unique strategy for their funds. VC Lab helps new fund managers develop their ‘secret sauce’ and thesis, which you can read more on here.

Influencing public policy as an avid backer of entrepreneurship and venture capital in Lagos,  Africa, Biola talks about the importance of partnering with founders and having a hands-on thesis to venture capital in emerging markets.

She explains a need to transfer knowledge and nurture entrepreneurship in the African ecosystem by giving founders the necessary expertise and capital. The way to do this is by a thesis of hands-on synergy. By doing so, new fund managers can help founders and prime the startups for success. This way they can also develop a reputation for adding value post-investment, which can later help in sourcing excellent deal flow.

Leveraging the past for future success: 

A part of your ‘secret sauce’ can be your past experiences and expertise. Being an expert in your fund’s domain is a very good indicator of your capabilities as a fund manager and something you should look to highlight to LPs.

Paolo discusses how his past experiences in financial services help him as a fund manager. He shares the benefits of having a multitude of experiences when it comes to investing in startups and how his background as a founder allows him to have a unique perspective and empathy

Paolo also dives deeper into the importance of leveraging said experiences when conducting diligence and adding value to portfolio companies post-investment. He also shares that this helps them have great deal-flow and spot investment opportunities where others cannot. 

The perfect first fund size: 

Neeraj points out that setting pragmatic and feasible goals for your fund size is a prudent course of action when strategizing your fundraising campaign. 

Our panelists note that when strategizing about their ideal fund size, VC Lab helped set realistic expectations and evaluate their network to calculate their optimal size. The panelists also believe that new fund managers should think about approaching their first fund as a proof of concept and not look to raise vast sums of capital. 

Use our free ‘Network Evaluation Template’ and refer to our in-depth guide to assess your network and calculate your optimal fund size. 

Finding gaps in the market:

When working on a fund thesis, managers should spend some time finding market opportunities in their domain of expertise. Market gaps are in abundance, and new managers should look to make a compelling case to LPs on how their fund’s focus can address them.

Nicolas explores underserved segments such as FemTech, which receives only 4% of all venture capital investments in the healthcare category. He highlights the disproportional amount of investment FemTech receives in the healthcare sector and shares his vision and the significance of having new venture capitalists operate in and build ecosystems in underserved markets

Looking for the perfect partner: 

Venture capital is a long journey, and most closed-end funds have a lifetime of around ten years, so finding the right partner is quite important for launching a VC firm.

Biola and Silvia both highlight the significance of finding alignment in values when looking for a partner, as it can often sustain relationships through the trials and tribulations of launching and operating a VC fund. 

When looking for a partner, clearly understanding your talents can help to find someone to complement your skillset and have a harmonious symbiotic relationship. An excellent way to find such individuals is to be active in an ecosystem where you are very passionate and add value to the ecosystem.

VC Lab runs Genesis, the four month accelerator for venture capital firms and venture builders.

Cohort 6 starts in February and will help participants from around the world close on capital and start investing by June of 2022.

Learn more and apply at


Interview: Court Lorenzini of DocuSign on LP’s Advice for VCs

Watch the interview with Court Lorenzini, co-founder and former CEO of DocuSign, and LP in 15 funds with over 60 additional investments in early-stage companies across the world.

On How VCs Can Add Value

Support founders not just in lip service but roll up your sleeves and spend hours with them

As a founder, the thing that made the most impact on me was when the VCs were willing to lean in more frequently and with more direct help than strictly attending board meetings. This is to the degree they offered their time, resources, and personnel in critical moments when I needed them. Whether that would be help in recruiting, access to somebody to help build out a new financial model, or ideate brand development, a product roadmap modeling …etc. 

Be there for companies when times get tough. Most companies are statistically not going to make it or going to scuffle, struggle and have all sorts of weird development trajectories. It counts a lot when you are there in those moments as a supporter.

You’re trying to sell yourself in a competitive landscape. Talk to people that have had that experience with you. Give founders those referrals and let them hear how you’ve made a difference in those other companies. That’s a huge deal.

On Advice to New Managers

As a new manager, you are learning your craft as much as the company is trying to learn its trajectory

You need to balance and spend an adequate and appropriate amount of time with each investment to nurture them in a proactive way. Not over nurturing and stifling them or, under allocating your time to them so that you’re meeting them on a quarterly basis only at the board meetings.

The size of the fund and ticket sizes are important. If you’re going to raise a $10 million fund and you want to put $250k to $500k in the first ticket, I expect you’re not going invest in more than 20 companies. If you think you’re going to invest in 50 companies I probably have a problem because that’s just spreading yourself too thin.

The size of the fund and the partnership team size relative to that is also very important. I like to see more than one partner and also I like having at least one ex-founder in the partnership. I think this brings an absolutely essential view to governing and managing companies in their lifecycles. 

On How LPs Pick Fund Managers

If they’ve demonstrated good team development I’m willing to give them a shot

I’ve backed quite a number of new fund managers. New managers are out there just sorting through the piles of opportunities that exist. And they’re all are looking for a way to demonstrate that they’re good pickers. Statistically speaking you’re not going to win on all or even most of your picks and that’s okay.

The real thing that I look for is their history in picking people and judging how to build good teams. If you can demonstrate to me that you have the ability to find, recruit, hire, train, develop and allow groups to succeed at a significant level, that is a great sign.

This is because you can take a great company and run it into the ground with mediocre people and a great idea. But if you have a mediocre idea and you put great people around it you’re more likely to succeed. So I’m first and foremost looking at that as a judgment and frankly, I think that’s a pretty decent pattern to match.

On Fund Operations and Reporting

I don’t need to see how the sausage is made

What I need to see is the sausage in the packaging

As an LP I just want the information available for me to consume. For example, one of the best fund managers in my portfolio has a semi quarterly status letter that gives me an overview of the operations of the fund with concise updates such as what they are excited about and what they are looking at. They have information on the portfolio companies, which allows me to dive deeper into individual performances.

The fact that they are taking the time to keep me informed of their progress, with documentation, gives me a lot of confidence. I don’t know that necessarily denotes a better manager, but it definitely gives me as an LP more confidence in their ability to organize their thinking, their communication, strategy, and keep their LPs involved. This, by the way, is one of the funds that has come back for more money, and I have put a lot more money in.

On Big Competitors

New fund managers are not competing with the likes of Tiger Global, if you think you are then you are wrong

First of all, you’re competing for different deals. You’re competing with the other folks who are also $10-$20 million funds and are writing similar-sized checks to you, or maybe slightly bigger than you. But the bigger the fund, the more money they have to put to work in each deal. It doesn’t make sense for an Andreessen Horowitz to invest $100,000 in anything. 

They can’t make the numbers work. They don’t have enough partners, time or energy to go around to compete with you at that size. So make sure you know who your competitors are as those people, probably won’t show up in the deals you will be involved in.

Insights Limited Partners

Interview: Court Lorenzini of DocuSign on being a LP

Watch the interview with Court Lorenzini, co-founder and former CEO of DocuSign, and LP in 15 funds with over 60 additional investments in early-stage companies across the world.

On the VC Asset Class

VC typically performs equally or better than other less risky assets

If you look at the asset class of private equity and sub-segment that down into startups you are looking across the ecosystem and saying “Where is this performing relative to other assets in my portfolio?”.

I’ve got many options to put capital to work and as an asset class even though this one is riskier it typically performs equally or better than what others would classify as less risky. To me, it’s a combination of asset allocation performance but also when you find managers who are outperforming they are generally radically outperforming. So you tend to pile up on those and that’s fun to watch and help those managers.

On VC Asset Allocation

I don’t have a specific number and I’m not aiming for a target amount with respect to my overall portfolio

This for me is a community with which I’m very comfortable. So as an asset class, I walk into this with my eyes wide open and I understand the risks, metrics and value. That being said, my portfolio to some might feel over-allocated to VC. I’ve probably got around 25% allocation in this class. 

But I’m not looking at the percentage. If I have a huge win in the portfolio I’m not really going to slow down my allocation to this asset class. I’m constantly looking at where my currently illiquid assets are and I have a bet that they’re going to become liquid at some point, or some portion of them will. So I’m not strict about that, to be honest.

On Evaluating New Fund Managers

I get very worried if I see a first-time manager saying they’re going to raise a giant sum of money

How much money I put into new fund managers really depends on many factors. I usually invest anywhere between $300k – $500k the first time out, depending on the extent of the manager’s track record. This gives me a feel of what this person will be like. Over the long term, I can put in around seven figures.

In evaluating a manager in the early stage, I firstly look at their deal warehouse, if they have any. I look at what those companies look like and talk with a few founders to see what really attracted them to this particular manager. I want to see if they have access to deal-flow that I want but am currently not exposed to. 

Importantly, I also look at the size of the fund they’re planning to raise and how they plan to allocate that. If a new fund manager says they’re raising a very large sum of money, that’s usually a red flag for me. To both raise and deploy large sums of capital is not a great thing for new managers. I also look at the size of the partnership, relative to the amount of capital being raised. I want to determine how many firms they can actually invest in or what they plan to invest in. Additionally, I look at how much time they’re willing to spend on each investment.

On Follow Up Investments

At this point, I can assess the fund’s performance

I have a couple of managers in the portfolio that have come back for second funds. I will say that in most cases I have re-upped with a bigger number in the second fund as generationally the funds get larger. 

I will put a certain amount of capital to work in the first fund and then wait to see how that performs. And then when they’re back in the fundraising mode I assess again and ask some questions. How do they pick? What are those companies looking like right now? Have they had any exits? Have they had any follow on investments? What do those look like? What are the things that they’re doing that make them stand out amongst fund managers?

On Sector Focus

I stick to markets in my experience base which is B2B Enterprise Software

One thing I check is if we are sector-aligned. I tend to know the sectors that I’m most comfortable in and can make a reasonable assessment. I tend to stick to my knitting in the sense that I’ll invest with folks that are going to build funds in areas that I probably have a deeper level of understanding.  

For example, there are some terrific pickers in the healthcare space and they’re successful as hell out there. However, because it’s not in my experience base it’s hard for me to initially judge whether they’re good or not. And so I tend to remain on the sidelines. 

There are lots of LPs who come from that space who are better suited. Flip that around and say enterprise software and consumer-facing companies, I know that space quite well. I’m very comfortable there and even climate, greentech as well as fintech, I can get comfortable with. So there’s a lot of spaces I’m okay with and there are a few sectors that I know I need to probably stay away from.

On Terms and Economics

Co-investment rights are very important to me

I have one other strong request that I make of all fund managers. I want to support the fund I want to be there and put a big chunk of money to work. But I also am very specific that when I make that investment, I also want co-investment rights when those opportunities present themselves. 

If the fund is looking for other people to jump in and add more money to the company it’s my expectation that I’m acting more like another venture investor than an adjunct to the fund in that context. So in such situations, I want no fees or carry on those co-investments as I’m in the fund already

On Being an LP

When they call I respond

I’m very active in the funds I’m an LP in. Again, part of my ethos is to operate in a way that not only provides capital but also my layers of experience to portfolio companies in the moments they need it. I’m always offering myself up to all the funds that I participate in as a resource and I’m extremely active in those funds.

As an LP, I want to economically grow the basket and put capital out where the entrepreneurs are, as opposed to pushing them into 5-10 economic centers. I think that model is tapped out. So as a significant backer of VC Lab, it’s important to me to back fund managers that are focused on undercapitalized and underserved markets. This is really important, however, these businesses must make economic sense. The deal still has to pencil out as that cannot be the only vector you judge.

One of our prime theses for myself and my wife is backing people from diverse backgrounds. We have a family foundation that my wife runs and we also have a for-profit entity that I run. In both of those, we look to deploy more than our fair share of capital to minorities and women investors, who themselves are investing in that sphere.

In Part 2 Court looks at the world of Venture Capital through the lens of an LP and shares his insights and advice for new fund managers.

Click here to continue reading.


Interview: Jason Calacanis on the state of the Venture Industry

Watch Jason Calacanis, legendary angel investor and VC explore the ‘State of the Venture Industry’ and read the key takeaways from this interview below .

On Early Stage Investing

You can talk yourself out of investing in any company in Series A and below

In the early stage, there are more reasons to not invest in a company than to invest

The most innovative companies look the worst in Series A and before. Companies like Uber and Airbnb looked so bad that most VCs did not invest in them early on.

Since 80-90% of startups fail, the best strategy for new investors is to invest in companies with traction. When starting out, focus on companies that are generating revenue and have at least 5 real paying customers that you can talk to, who were not sourced from the founders’ inner circle.

Part of the job is being an investigator. Make sure that you and the founder are aligned on simple definitions such as customer and user. In some cases, founders define a customer as someone who has logged in once. Find out if the metrics and definitions match your expectations and verify all the data.

The sweet spot is $10k-$20k MRR. In the beginning, focus on these companies to gain some experience in investing. With time you will develop an understanding of the market and startups like myself and Adeo. Lastly, try to focus on a few geographies, for example, I’m currently active in only around 2 to 3.

On the Market

In the short run, the market is a voting machine but in the long run, it is a weighing machine

Benjamin Graham

New entrants coming to the market such as Tiger Global and other public market investors are marking up valuations. Their strategy is getting in on as many quality deals as possible with small regard for price. Averaging a deal every 48 hours comes at the cost of due diligence. In contrast, we do more careful diligence than ever.

So we are seeing a very frothy market and reality may soon come if the bubble bursts. We will then get back to valuing companies based on their earnings. Right now people are voting on the potential of technologies but eventually, they will weigh their earnings. Companies like Apple, Microsoft and Tesla are being judged this way now. Many others like Uber and Lyft are starting to show profits, but they’re the outliers. 

On Strategy

The problem now is, people have stopped looking at the process and are concentrating on the outliers.

Focus on the process and the outcomes will take care of themselves

Outcomes are a function of the process so, we still focus on that and the fundamentals of a company. To not get caught up in the mania, I try to stay humble and not look at the previous victories and I look at each company with a fresh set of eyes. I focus on what I can control and not worry about the rest. 

In this market, I will at times sell 10%-20% secondary shares when the right opportunity arises. I want to lock in wins for my LPs and investors as we don’t know when the liquidity will emerge. I believe in slowly pairing your position and think that this is a wise philosophy in the current climate, though some people believe that you should let your winner ride. 

On Sequoias New Fund Structure

Sequoia is in a unique position in that they are the greatest venture capital fund of all time

They have decades of relationships with long-term LPs such as endowments and foundations. These LPs are not sensitive to time so they are aligned with Sequoias ‘patient capital’ thesis.  If Sequoia held their positions in companies such as Google, Apple and many others, they could be somewhere from a $500 billion fund to all the way to a trillion.  So for LPs in Sequoia, it makes sense to hold on to these assets for the long term and not take the tax hit.

This way Sequoia can also be on the boards of these companies and have a much larger influence. For example, Roelof Botha, a friend of mine who made me the first ‘Sequoia Scout’ sits on the board of Square, which went public at $15 – $20 per share and is now at $250. As a board member, he knew the company was on a tear, so was able to make the decision to not liquidate their position, knowing that there was a possibility of getting 20X more returns after the IPO. So with companies like that, you would want to hold them for the long-term, but only the top-5 venture firms can probably do that and this fund structure allows them to do so.


Interview: Andy Zain on how the top VC in South East Asia was built

Watch the interview with Andy Zain, Managing Partner of Kejora Capital, a VC firm focusing on South East Asian tech companies.

Here, Andy dives deeper into his early insights and shares his strategy that took Kejora Capital from $5m to $600m AUM in 8 years.

He discusses the process of venture building in a developing market and explains why Kejora’s thesis has proven to be so successful.

Read more to get actionable insights from South East Asia’s top performing VC.

On Early Insights

In emerging markets, you cannot be too niche

You must focus on the infrastructure level of the digital economy 

When we came into the South East Asian market 8 years ago, it was still an emerging market. What I mean by digital infrastructure is the array of services it takes to launch a product or service.

For example in eCommerce, services such as payments and logistics are a necessity. In the US these services are in ample supply, however, in emerging economies, these areas present a great opportunity for VCs.

We also found that entrepreneurs are typically first-time founders in emerging markets. Though some have started companies in the past, most do not have experience in building and scaling tech companies.

This is why we opted for the focused venture building approach rather than the spray and pray model and why we like to bring in founders into our office. With this approach we can leverage our own experience as entrepreneurs and help the founders directly.

In developed markets, the spray and pray model can work very well, but not in emerging markets. We must contribute to developing the ecosystem. As VCs we are change agents, so we should not take this responsibility lightly.

On Start-Up Fundraising

We give Pre-Series A companies, Post-Series A investment

Fundraising in emerging markets is very inefficient for founders and can take four to five months, forcing them away from their products at a crucial stage.

If the company is raising $1m, we like to offer them $2-3m. At this stage of development in the ecosystem, we like to invest a larger amount than most (in stages with milestones), so the founders can focus on building their company.

This way we deploy our capital much quicker, typically in 1-2 years and focus on a few companies per fund. We use the remaining time to help, mentor and groom our startups.

We’ve found that this formula works very well and our success rate is close to 80%, while we only lost money on 5% of our investments. It’s a great model when the ecosystem and market are in their infancy and though our fund is much bigger now, we still follow this recipe to some degree.

On the South-East Asia Market

We are in the Golden Era in South East Asia

There are opportunities in almost every market, which makes it prime time to be here. The region is also not very saturated. Most of the unicorns have come from a handful of places such as Singapore and there is still a long way to go in places such as Indonesia, Thailand and the Philippines.

There’s a record level of investment coming into S.E Asia, and we utilize our know-how to develop and invest in many first time founders. South-East Asian GDP is at the level of China when it produced companies like Alibaba, Tencent, Baidu and the region produces its own unicorns who have started to IPO.

This region is also incredibly fast in producing unicorns. Typically it takes over twelve years to create a unicorn and IPO. Here we’ve seen them built and exited in as quick as eight years, they can even reach unicorn status in two years.

The region is ready for scaling, and things are moving much faster. We have over 600m population of which 350m has mobile and broadband access, which is larger than the US. Consumers here are able to adopt and consume tech much faster.

On Thesis

Our overarching thesis is hands-on synergy

Focusing on digital infrastructure is our strategy

We have multiple funds with unique segments and theses. We focus on spaces where we are experts and we invest in areas that can provide synergy for the ecosystem we are supporting. This way we can push long-term trends and also have short-term flexibility and agility.

When we launch or back a new business, our larger companies can immediately provide synergistic partnerships whether it’s mentorship or something else. To accomplish this we act as an intermediary between our large portfolio companies and much smaller ones.

We can do this because of our tight-knit relationships and our large stakes in these companies. This is why we choose to work very closely with a few companies. It wouldn’t be possible if our portfolio consisted of hundreds of companies with smaller stakes.

We only focus on areas we understand and where the market is ready. This is why we don’t invest in DeepTech or Crypto. All the talent for these industries is not here so it doesn’t make much sense for us to invest in such areas.


Steve Jurvetson on Investing Smarter

Watch our interview with Steve Jurvetson, who has been supporting transformative businesses for over 25 years as an early investor with the likes of SpaceX, Tesla, Planet, and UPSIDE Foods; and as a Presidential Ambassador for Global Entrepreneurship (appointed by President Barack Obama).

On Fund Size

The bigger the fund size the worse the returns

A $1bn fund cannot perform as well as a $50m fund

However, the conventional line of thought used to explain this may be wrong.

The industry has always explained the loss in performance with phenomena like ‘regression to the mean’ and the change in the stage of the fund, the ticket size and the increase in deals per partner.

I think that there is an independent reason that you can statistically discern, which is the team size.

On Team Size

It is statistically clear that when teams are bigger they make worse decisions

In Google, the average programming team is five. Beyond a team of seven, you have diminishing returns.

So I think that nine-person groups in a partnership are not a team. They usually have sub-groups / committees and it negatively affects decision making

Smaller is better in Venture Capital, but one is not great. As one, you have no one to bounce ideas off. This is why I’m loving being in a partnership of two at Future Ventures. I think I would be a worse investor if I was alone.

Even the best startups come from dynamic duos. At Apple you had Jobs and Wozniak, Yahoo had Yang and Filo, even Ellison had Miner at Oracle and obviously Page and Sergey at Google.

The mutual respect between two amazing people is a recipe for success. It sets out a similar culture as the company grows and the two characters balance each other. 

On the Importance of Debating

In 2012, I loved debating Peter Thiel on the future of electric cars and Moore’s Law

He is the only person who will argue 180 degrees on the opposite side on those topics and take a contrarian position.

When you have to defend a position you deeply care about, it really makes you think and is very fascinating.

A lot of my great investments such as SpaceX have come from internal debates and repartees I’ve had with someone else rather than a profound personal epiphany. 

On Fund and Partnership Dynamics 

You cannot have a diminutive hierarchical structure and expect junior members to fully challenge you on ideas

Open discourse allows us to arrive at the truth. Creating an atmosphere in your fund where debate is accepted is very important. When bringing in junior members, you must allow them to be contrarian.

Sometimes firms create argumentative cultures to compensate and offset groupthink which is unhealthy on so many levels. In contrast, at DFJ we had all the junior members come in with expectations and the potential of becoming a partner and not as subordinates. 

Lastly, the investment committee’s consensus policy is also very important. Having a unanimous consensus model may work with small tight-knit teams, but is very challenging in large teams. In our scoring model, a ‘passionate minority’ could outvote a majority. This allowed me to fight very hard for our investment in SpaceX and convince the IC.

On Thesis and Strategy

I can easily encourage everyone to follow and copy our core strategy

This is because our strategy is inscrutable from the outside, kind of like Tesla putting out the ‘Master Plan‘ 10 years in advance.

Unlike most firms, we didn’t pitch our specific areas of focus to LPs. Our core strategy is our ‘process learning’ and investing in things we’ve never seen before, which are adjacent to an area of expertise. 

For example, UPSIDE Foods was adjacent to synthetic and re-engineering biology, where I had previous experience. Interestingly, I had written a blog post about my interest in investing in this space and I think Uma, the founder of UPSIDE Foods, was keen to speak to us because of this.

It also sparked an interesting dialogue with Moby, the famous vegan, which really helped refine my thinking on the matter and connected me to groups focused on this topic. 

On Fund Formation

Usually, it is brutal to raise money for a first time fund

I should disclose that we came in with a great track record and a vast network so our journey might be different from most new fund managers. The process took around three months, which is incredibly fast and not typical.

It is very important to think about your successive funds early on and include your plans in your discussions with LPs. The more experienced LPs will ask about this so be ready

We found a statistical correlation that showed a partner’s personal track record was a 6X better predictor of future success than the firm the person was previously at. So we were able to leverage our past performance in our pitch. 

On Advice and Strategies for New Managers

Focus on change that matters and the money will follow

Companies that are going to change the world like SpaceX and Tesla are what really excite me

Looking back at my life, I’ve had enterprise software investments that went from $700,000 to going public at $11bn and I am having trouble remembering them.

In the long run, companies that improve the world in a meaningful way are much more satisfying than those that just made the most money. I would urge you to think long and hard about what you care about. It will correlate with success so much better than being a momentum investing, arbitrage-seeking opportunist. This tactic will not work long-term.

Secondly, on strategy. Early on, don’t just follow other venture funds and the warmth of the herd. 

Bill Joy has a saying that “people outside your company, on aggregate, are smarter than people inside your company”. Don’t assume you are smarter and can out-execute others, it is a doomed scenario if you do. This cannot be a basis of long-term strategic advantage.

Focus on what differentiates you. Most new entrants are working much harder than me and many other established VCs. Go where the rest of the herd is not looking and where the puck isn’t moving.

Here is a great anecdote. In 2015, SpaceX raised $1bn. This amount exceeded all historical investment into space by the venture industry by 2X. Subsequently, it has gone up to multiple billions every single year. There are now over 500 venture investments into space. In stark contrast, when we got in, there were 5 at most. 

This content is provided by VC Lab, the venture capital accelerator. 

The free 16 week VC Lab program provides guidance, structure and a network to complete a fund closing in 6 months or less. Since mid 2020, VC Lab has helped launch over 100 venture capital firms around the world.