I Tried to Raise My First VC Fund and Failed
Instead, I’m Heading Back to the Valley of Death as a Founder
That’s a strange choice some might (rightly) say. Like I wanted a loan from a bank to invest in a bunch of houses, and instead, I’ve decided to try to build an apartment building myself. Kind of.
Fundraising headwinds they’re a blowin’.
Even Scrooge McDuck would find it hard to raise extra loot in the Limited Partners (#LP) [large institutional investors] winter that Venture Capitalists (#VCs) find themselves in. It’s been hard to raise capital since late 2022. And I’m no Scrooge McDuck.
Like many industries, Venture is rife with biases.
I’m just about to turn 64. I’m an Australian kid from the bush (cue the big screen orchestral music as your mind moves to images of the Baz Luhrmann directed “Australia” with Nicole Kidman and “huge” Hugh Jackman), I started my first business at 13, I dropped out of school at 15 to get a job and help pay the outstanding bills of my Dad — as running a farm and working a second job as well as my Mum working two jobs wasn’t bringing in enough money. I did eventually get into a good Uni (college) 12 years later and completed a Bachelor’s degree but I didn’t get an MBA from an Ivy Leage College in the USA (read Stanford), I didn’t work in an investment bank or one of the OG Tech companies and have a stellar career, I started several businesses and got them all to 7 or 8 figures in revenue but never 9, and I invested in 60+ startups from all over the world, but only two of them resulted in unicorn type returns and had names that anyone recognizes.
In other words, I don’t fit the mold of a young educated white male in his 30’s who has ticked all the boxes that are a pre-requisite to knowing how to manage other people’s money. I call BS on that.
I’ve made more than 5X on every dollar I’ve invested (including the money invested in one’s that closed down etc.).
To put that into perspective, based on research from Cambridge Associates, from 1995 until now, the upper quartile of VC funds reached 4.6X in one year, 1996. Over the past 10 years, the upper quartile of VC Funds has had an ROI of between 15%-27%. Mine has been above 50%.
Why not just wait and try to raise again when the LP winter thaws, and the bears turn to bulls again?
The tide will eventually turn. It always does. I imagine in a couple of years the pendulum will swing back. Maybe all the way back to the heady days of 2021. I hope not. That’s what caused this mess.
It wouldn't help me. US LPs are the gatekeepers to the majority of new capital invested into VCs. And although there are large sums invested from Europe, Middle East and Asia-Pacific, the general rule is that the majority of that capital is looking for a home with an establish VC, or one could say an OG VC.
I invested a year and contacted and called 100+ LPs that supposedly invest in first time GPs (VC Fund Managers).
A handful looked into my angel investment track record and gave praise, but still said that they could not take the risk. Their jobs were on the line. They’d made bad “bets” (investments) in 2020+2021 and seen up to 80% of their investment values written off. They were gun shy and risk averse. There was a saying back in the 80’s and 90’s when alternative investments became a thing to describe endowment managers who wanted a piece of the potential upside of allocating to the alternatives asset class but didn’t want to risk it, and that was “nobody ever got fired for investing in IBM”. IBM was Wall Street’s darling back then. How times change.
Why a new startup? Why not keep angel investing?
The reason I wanted to raise a $30M-$50M venture fund was so that I could adopt a portfolio approach to investing in early-stage startups that had solutions that tackled one or more elements of #climatechange. Global warming needs to be tackled on multiple levels. We need individuals to take action. We need communities to take action. We need whole industries to take action. As an angel investor, there is a lot more luck than strategy to investing. An angel investor, even when you are part of several angel syndicates, still can’t achieve enough investment concentration in a sector or on an investment thesis to be able to move the needle.
Call me ego driven, but when I die, I want to die happy in the knowledge that I left it all out on the field. That I didn’t take the easy option and sit back and enjoy the game from the cozy VIP suite.
I thought that meant securing more capital to direct into startups that have the potential to move the needle, and who I know from experience are not likely to secure capital from Silicon Valley VCs, because, well, they’re not based in Silicon Valley and the founders don’t have an MBA from Stanford.
One Climate Unicorn that breaks the mold will open the door to a dozen more.
The more I thought about it, the more I realized that if I can find a co-founder or two and work through hundreds of ideas until we find one that will allow the company to scale quickly, then if we get big enough, we can be like a beacon/magnet and attract both capital and talent into this sector, which will hopefully lead to a dozen more Unicorns based on a dozen more breakthrough climate change solutions.
And in my wildest moments of optimism as an Angel investor, I know that 20 more years of me investing capital into climate tech startups is not going to achieve that kind of outcome. And we don’t have 20 years left.
What’s changed this time around as a founder?
This time around I want to be part of a team. I want to have access to support and resources — financial, intellectual, and network. My last successful “team” startup lies 20+ years in the past. Most of my endeavors that have progressed beyond the idea stage since then have been solo initiatives.
Full disclosure: I’m not there yet.
I started mulling this idea about startup vs fund over in late November last year. In early December, the worst time of the year to be starting anything, I started applying for founder roles in a couple of Singapore based Venture Labs that I knew well. To my surprise (we always undervalue ourselves) I was able to have some interesting and insightful conversations with some very bright people at these Venture Labs, but things didn’t go further.
Then I stumbled across an add on LinkedIn for the next #Antler Singapore intake. I applied, had more interesting calls and, well, I was given an offer, and the programme starts in early March.
And I’m excited.
What’s the point of telling people this?
I’ve got a lot of experience as an entrepreneur, founder, co-founder, angel investor, mentor etc.
And yet back in 2022, I could not see the path that I am now on. I thought the ONLY way to achieve my goal was to raise capital and deploy it.
I suspect that my ego hijacked my subconscious and that scares me, as I’m super aware of being on the lookout for biases, self-sabotage programmes.
The funny thing is that I can always see these kinds of alternative pathways when I’m mentoring/advising another founder. I guess I’m not as good at seeing my own situation (it seems).
Therefore, if there is a point to this post it would be this:
- Raising capital is tough as a startup but even tougher as a first time VC — but don’t let that stop you — just be aware of the inherent biases that exist in Silicon Valley, and in the minds of most of the Limited Partners that invest into VC and PE.
- If you have a big vision, ask someone who has been there before to look at the path you’ve chosen to see if there are alternatives that might be more advantageous/higher chance.
If you liked this story, you might like to join me on LinkedIn on my private page — https://linkedin.com/in/thefundraisingangel or read my blog, where I post about issues affecting startups and startup founders — Blog | James Spurway.
