5 Lessons We Learned Building a Venture Capital Fund From Scratch TechCrunch
This month we are five years in building Opposite. Along the way, we’ve raised hundreds of millions from some of the world’s top institutions and been lucky enough to back startups like Ramp, Anduril, and more.
But much like the stories of the startups we support, the journey has taught us a number of lessons the hard way.
I reflected on our history as we passed this milestone and wanted to share a few things I wish I had known five years ago.
First logos are important
One of the few regrets I have is that we didn’t do the logo hunt early. We didn’t sue hot companies that held rounds led by well-known companies. Instead, we stuck to our knitting on Fund I, touring startups and teams we were sold on and sourced through our own infrastructure. I felt like if we did exactly what we said we would do – lead tours, support great talent, bring a unique model to market – we would stand out.
It turns out that when you’re building a VC business from scratch (limited experience, haven’t worked at a company before, etc.), logos are important. They are important to potential LPs, who use them as an access proxy; they matter to your peer group, who use them as an indicator of how insightful you are; and they count for founders, who will immediately go to your website and see if you have backed any brand startups.
When you start a venture capital fund, you should expect to barely figure out if you’re competent for the job within 3-4 years.
Fast forward to today. Ironically, our Fund I is one of the best of its vintage, according to Cambridge Associates benchmarks. But this performance took five years to blossom and made it more difficult to raise Fund II. An LP once asked me, “Have you invested in any startups I’ve heard of?”
Reputation is essential
In an industry where your reputation and brand are the most important parts of building a business, getting started from day zero is essential. Early logos are only one piece of the puzzle.
Invest heavily in building meaningful relationships with highly respected partners, founders and LPs. Send them relevant, high-quality offers for free; become friends on Twitter; go to events; co-invest in companies; and send them a cold email and have a coffee. Do whatever it takes, because relationships are commonplace in more ways than one.
For example, one of the main ways LPs will evaluate you and your fund is by aggressively checking references with their existing venture managers. They will ask you if Partner X has heard of you, if they have worked with you, and if they would be willing to make offers to you.
This requires brand awareness at the bare minimum and ideally includes years of collaboration and producing exceptional results. The best way to build your reputation is to send offers to investors that ultimately make them a lot of money.