Are solo GPs screwed? | TechCrunch

Entrepreneur Ankur Nagpal raised a $70 million venture capital fund, called Vibe Capital, from more than 200 investors last year. But now, as the market moves and LPs are less interested in venture capital, Ocho’s founder is cutting the fund side by about 43%, canceling capital calls, and ultimately returning the money that had already been transferred to the fund.

The contraction, Nagpal told TechCrunch, has happened because he’s busy building his own startup and the funding environment has shifted to more realistic expectations: “What looked like a $10 billion result dollars is now a result of $1 billion.” As a result, he says he’s more confident of a higher multiple return if he invests from a smaller fund.

His LPs were surprised but “super happy” to reclaim the capital, Nagpal said. Since the cut was announced, the founder says he has been messaged by five different solo GPs asking for introductions to LPS which has just reclaimed the capital. “I think the reality is that a lot of these people who are getting money back are actually not going to allocate it to adventure anymore.” One of Nagpal’s biggest investors is Tiger Global, which has become notorious for withdrawing from venture capital fund betting. Its other investors, namely venture capital funds, will likely use the capital to bet on new startups from their own funds, he said.

In the case of Nagpal, this decision will allow him to devote 90% of his time to his new startup. But he says others in the world of solo GP are going through a tough time. Many are reducing fund goals, extending fundraising deadlines, partnering with investors to avoid team risk, or even going to placement agents, once taboo in the fundraising world, to help them close investors in exchange for a commission. “Even those who take it seriously are now trying to build a business, so you kind of become the thing you were trying to replace,” he said.

It’s a shift from the fund-of-funds mentality that seemed common last year, in which investment firms cut checks to early-stage experimental investors to reduce risk and even direct early checks to a generation of new startups. At the time, Tiger announced his billion-dollar fund to back other funds, but has since reneged. Alexis Ohanian and Katelin Holloway’s fund, 776, has dedicated $10 million of its $500 million fund set to support emerging fund managers. (The company did not respond to requests for comment on an update on the funding allocation.) Other efforts, like Spearhead, a platform to turn founders into angel investors built by Naval Ravikant from AngelList and Jeff Fagnan from Accomplice, seem to be no longer active.

The history of solo GPs

Before solo GPs were in the spotlight, they were pushed aside. LPs weren’t giving significant capital to venture capitalists alone, but as entrepreneurs with massive networks sought to formalize some of their angel investment deals, the deal sweetened. Add to the fact that platforms like AngelList made it easier and cheaper to set up a fund and manage all the associated administration costs, and the jokes started rolling: anyone with opinions and a following on Tech Twitter could create a fund.