Why can’t micro VC venture capital funds raise money like startups?



There is a tiny bit of this. Folks like Alex Bangash’s Trusted Insight (an LP and anchor in my fund) have platforms that, for the very best LPs and managers, enable some of this:

And to be clear — you can use AngelList, if you have a big following, to basically construct a fund. Gil Penchina has basically done this, and spectacularly.

The real challenge today is that most institutional LPs are already overwhelmed with good “products” (i.e., venture funds) to invest in as it is. Most VCs don’t even have enough “very good” start-ups to invest in. But as an LP, especially if you are willing to do micro funds, you have 100+ funds a year with >good< track records, or at least partial track records, pitching you. LPs that do micro-VC (funds < $100m) are overwhelmed with funds seeking capital from that have 4x+ track records, if not as funds, then at least as individuals.

So there isn’t really much of a sourcing issue for LPs. It’s a picking challenge. And of the maybe 5-10% of LPs that actually want to do micro-VCs (most don’t), they add maybe one new fund, one new manager a year. One. This is non-obvious.

Versus an angel investor using AngelList might do 20+ investments a year. Or a VC firm might do 4–10 new investments a year. LPs maybe do one.

So there’s definitely some white space here. But it’s much smaller and nichey-er than you might think.

And the way to do it is not with any sort of traditional LPs, but with High Net Worth Individuals. Here there is still room to do an Angel List of Micro VCs. But not so much with any traditional LPs.

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Published on December 8, 2016
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