5 Lessons We Learned Building a Venture Fund from the Ground Up • Zoo House News
- December 11, 2022
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Eric Tarczynski Contributor
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This month we are five years busy developing Contrary. Along the way we have raised hundreds of millions from some of the world’s leading institutions and have been fortunate to support startups such as Ramp, Anduril and many others.
But just like the stories of the startups we support, the journey has taught us a number of lessons the hard way.
I’ve been reflecting on our story as we reached this milestone and wanted to share a few things I wish I had known five years ago.
Early logos are important
One of the few things I regret is that we didn’t go logo hunting early on. We weren’t chasing hot companies that made rounds led by well-known firms. Instead, we stuck to our knitting on Fund I and led rounds in startups and teams that we believed in and sourced from our own infrastructure. I felt that if we did exactly what we promised – lead rounds, support great talent, bring a unique model to market, we would set ourselves apart.
It turns out that logos are important when you’re building a venture company from scratch (limited track record, haven’t worked in venture before, etc.). They are important to potential LPs, who use them as a proxy for access; You are important to your peers, who use them as proxies for how perceptive you are. and they’re important for founders, who will immediately go to your website and see if you’ve backed name-branded startups.
If you are starting a venture fund, expect to have little understanding of whether you are competent for the role within 3 to 4 years.
Fast forward to today. Ironically, our Fund I is one of the best of its year according to Cambridge Associates’ benchmarks. But it took five years for that accomplishment to blossom, and it made Fund II more difficult to source. I was once asked by an LP, “Have you invested in any startups I’ve heard of?”
It hasn’t been a problem for a long time, but I have no doubt that logo-hunting would have saved us time in the early years.
In an industry where your reputation and brand are the most important ingredients in building a business, it’s crucial to start from day one. Early logos are only part of the puzzle.
Invest heavily in building meaningful relationships with reputable partners, founders and LPs. Send them relevant, quality offers for free; become Twitter friends; go to events; co-investments in companies; and email them cold and get coffee. Do what is necessary, because relationships are currency in more ways than one.
For example, one of the primary ways LPs value you and your fund is by aggressively checking credentials with their existing venture managers. They will ask if Partner X has heard from you, worked with you, and would involve you in business.
This requires the bare minimum of brand awareness and ideally involves years of collaboration and delivering outstanding results. The best way to build your reputation is to send deals to investors that end up making them big bucks.