Earlier this month, we announced Acadian Ventures Fund I, our inaugural fund investing in a new generation of companies creating the new future of work. This was my first attempt to raise capital for an early stage venture fund. While I certainly had plenty of experience in capital markets — financed M&A transactions, convertible debt offerings, corporate venture capital (CVC) investments and working with public market investors — I have never raised capital for a venture capital fund.
Let me preface by saying that raising capital is hard, particularly for a first-time fund. Anyone that tells you otherwise has never raised capital. Without a longstanding track record in venture, first time funds face many questions. What is the relevant experience of the team? What is the portfolio construction model? How does the firm make investment decisions? How are you sourcing deals and getting deal flow? What gives you a competitive advantage to win? And even with the best answers to these questions, “signalling” — who made the introduction, what other LPs are investing, etc — is often the most critical factor when LPs make investment decisions.
While there may be plenty of insights and advice available for startups raising venture capital, I found it difficult to find resources, particularly from emerging managers, that share how to navigate through a first fundraise. So here it is. This is our story how we raised our first fund as a “solo capitalist.” Even though we are currently a single General Partner (GP), I am lucky to be supported by limited partners, advisors, and friends — a collective “we”! It is important to note that every fundraising process has a number of variables. I wanted to share our story as a guidepost and hopefully encourage potential emerging fund managers to take the leap.
Our Fundraising Story
In hindsight, our fundraising for Fund I started in earnest over 15 years ago when I became an analyst, and more so, a “student” of WorkTech and SaaS. During the first generation of SaaS, back in the early 2000s, I absorbed the market. I would show up at every industry event, be the first person to show up and the last one to leave. I learned by researching and watching, and was lucky to meet pioneers in the industry including Dave Duffield (Workday), Aneel Bhusri (Workday), Lars Dalgaard (SuccessFactors), Aron Ain (Kronos now UKG) and Adam Miller (Cornerstone OnDemand), who eventually became my boss and mentor. I also got to know many of the executives and teams across the industry and continue to this day to nurture those relationships. More on that later.
When we began our fundraising process, a few things became abundantly clear. First, start small. Some of the best venture firms including the likes of Softbank, First Round Capital, and more recently Initialized Capital, started as sub- $20M micro funds. As much as I’d love to have a $100M+ fund to be writing checks, we focused on a fund size that was big enough that we could “pay the bills” but also one where we could execute a designed strategy.
We seeded the firm with our initial GP capital commitment and our own capital infusion to get the fund off the ground (legal fees, fund administration fees, general administration fees for software, equipment etc.). We also took on a few consulting gigs to ensure the Amazon boxes would continue to show up for the family.
One of our first decision when launching the fund was to complete a first close as quickly as possible regardless of the amount. Our rationale is that we needed to start building our own track record as fast as possible. While many would recommend a first close of 50% of the fund target, our first close was only about 15%. The capital, though, enabled us to make investments that were in the works for a few months. Thankfully our first 3 investments have worked out well. One company has raised follow-on capital, one company was acquired and is now part of a unicorn ($1B+ valuation) company and one is already on a “fund-maker” path.
As we started to shape our limited partnership, we made an important decision to be very intentional in our process — focusing on individuals and our broader network instead of a few institutional investors. Some early advice we received was not to spend time with institutional investors. “They have the benefit to observe from the sidelines to see how you perform on Fund I.” While there is some truth and fiction to that statement today, we decided to limited our outreach to institutional investors. We meet with a half dozen institutional investors but approached those meetings to learn and build relationships rather than “pitching” for capital. Looking back, the feedback we received during those meetings was hugely valuable, and thankfully we were able to land one institutional investor.
As I said earlier, our fundraising started in earnest 15 years ago when we began building and nurturing our industry relationships. As a result, a majority of our LPs came from relationships with individuals that we had worked with either directly or indirectly. A majority of our LPs are former colleagues, partners, and various types of public and private investors.
We had 4 closes in our fundraising process. As you can see below, our entire fundraising process was about 24 months in total. This may seem long for some, even in this market, but our fundraising was deliberate with a few bumps in the road. We paused our fundraising efforts twice, once in 2019 to support my wife through a battle with cancer (she won!) and once in 2020 during the uncertain period of the pandemic. In actuality, our fundraising efforts took about 12 months. We closed a majority of our LPs (70%) in the last 4 months as we gained momentum, confidence, and broader LP support.
Key Lessoned Learned
- Be intentional about fundraising. Fundraising is a sales process. Just like in sales, it is important to build stages and a funnel to prioritize and manage the process. At each stage, it is important to have “assets” available to progress the “prospect”. Do your homework to qualify potential (and relevant) LPs and set the timelines early in the discussion. As we looked at potential LPs, we determined high net individuals (HNIs) would be the best path for us since: 1) we didn’t have a long-standing track record, 2) we didn’t have many institutional LP relationships, and 3) we had an immediately available industry network to access. Unlike other early stage funds that will often reach out to 300+ prospective LPs, we were highly targeted and only reached out to 122. We were fortunate to have a high conversion of LPs (47%). We prioritized our fundraising when we had inflection points in the fund (an exit, winning a highly competitive deal, new notable LPs, a portfolio company milestone, etc.) One additional data point from our fundraise was that 35% of our LPs were individuals we worked with directly or indirectly over the last decade.
- Don’t over-engineer your story. Every new VC wants to think they are unique and differentiated. We kept our message simple and focused on three things that we thought would resonate: 1) our market knowledge and hyper-specialization approach (“we only invest in “future of work” companies”), 2) our network of LPs and advisors (“we are a collective of executives, operators, and builders of some of the largest SaaS companies”, 3) our ethos (“we are not an impact fund but we are impact investors”) as showcased by our commitment to Pledge 1% and creating the Acadian Foundation.
- FOMO is real whether a startup or a fund. We all know people want what they can’t have. Our FOMO played out in three ways: 1) we brought in some notable LPs early and quickly got recognized as a “who’s who” list of individual LPs (very specific to our thesis), 2) we talked about the deals we got in, the other Tier 1 VCs we co-invested with, and the success of our early investments, and 3) we managed our prospective LPs as a pipeline with weighting and once we had line of sight on our target commitment, we set a final close date that didn’t move.
- Communicate frequently. Trust and transparency is at the core of our firm. We want our LPs to have complete visibility in all aspects of our firm. Out of the gate, we drafted our “operating manual” to articulate and guide our investment thesis. We sent, and continue to send, monthly updates to our LPs (this is something we ask of our portfolio companies so why shouldn’t we do the same thing?) We also continue to send a quarterly newsletter to all of our stakeholders — founders, advisors, other VCs and even future, potential LPs — to share our progress and fund evolution. Interestingly, 10% of our capital commitments came as a direct result of our quarterly newsletter.
- Start building track record as soon as possible. We felt it was important to begin writing checks as soon as possible. We wrote our first check within 30 days of our first close. We also did a follow-on investment in one of our angel investments pre-dating the fund and rolled the angel investment into the fund at no cost. Our third investment was a company that had been in the works for about a year before their fundraise. At the end of the day, venture is all about track record and the sooner you can build it for a new firm, the better.
- Think about portfolio construction early and often. When we launched our fund, we created a very simple portfolio construction model. To be honest, it was a bit of an afterthought at the time partially because we didn’t fully understand the various inputs and levers in portfolio construction. Fast forward to today, and there isn’t a day that goes by where we are not thinking or iterating our portfolio models. I’m not a believer that the portfolio model you start with needs to be the one you end with. We’ve been fortunate to have some early success that has allowed us to adapt our strategy and portfolio model accordingly.
A Few Thanks…
I’ve talked a lot about our journey, but I’ve been extremely fortunate to have plenty of help along the way. A big shout out to…
- My LPs, particularly the early supporters, that committed without even a pitch deck.
- A few of our LPs that helped shape our story including Josh Schwede and Kevin Marasco and others including Thomas Otter that have been highly supportive in our investment decision-making process.
- Byron Deeter from Bessemer Venture Partners, Rob Ward from Meritech Capital Partners (both board members from my former employer, Cornerstone OnDemand) and Adam Miller (founder & Executive Chairman of Cornerstone OnDemand) for their early advice and encouragement to just go for it.
- Our broader support system including the team at Carta (Amy and Kordell rock!) and Goodwin Procter.
- A number of individuals that I’ve never met but have given me tremendous insight by just simply listening and learning including Harry Stebbings (20VC), Samir Kaji (Venture Unlocked podcast), and Beezer Clarkson (OpenLP/Sapphire Ventures).