It’s been exactly two years since I took the leap and started raising the first Firebrand Ventures fund on August 1, 2016. Recently my friend Elizabeth Yin, GP at Hustle Fund, wrote a great blog post called 11 Things I’ve learned from running a micro VC in the last year. It’s wonderfully transparent and debunks a few of the myths about starting your own small fund. After reading Elizabeth’s post I was inspired to take a crack at documenting some of my lessons from running Firebrand the past two years.
Like other emerging fund managers, I’ve greatly benefitted from the trend of increasing transparency in VC. Whether it’s blog posts by Brad Feld, Mark Suster, or Fred Wilson (who’s written a blog post every day for almost fifteen years!) or others offering up gems on awesome podcasts like The Twenty Minute VC, I’m grateful to all who share their learnings.
So I wanted to pay it forward in some small way and relay some of my experiences. In particular I wanted to share some details from my fundraising process because there doesn’t seem to be a lot of info about that.
I have way too many learnings for one blog post but hopefully some of these will be helpful.
1) Before You Raise: Get Lots of Feedback
Talk to as many VCs as you can. I found it especially helpful to chat with VCs who had an active role in raising their funds. Different VCs will have different advice on the same questions so compile everything and then filter it when you’re done. Make it easy for them to help you by asking specific questions. What should you get feedback on?
Start with the Overall Approach …
• What kind of fund do you want to be – i.e. pre-seed, seed, or both? Where do you see the compelling opportunities? Do you want to be a sole GP or have one of more partners? What’s your investment thesis?
… Then Drill Down
• Your investment strategy: The specific sectors, stage, geography, etc. you’ll focus on
• Your investment criteria: Key factors you’ll look for in a startup and its founders
• Your economic model: Targets for valuation range and round sizes you’ll invest in; your typical check size and equity stake; target fund size (see below)
• Portfolio Construction: Portfolio size + equity stakes + follow on allocations, etc.
• Check out other VC fund websites – most will list their approach and criteria. You can also learn a ton by listening to experienced VCs on podcasts or watching them give interviews on YouTube.
Your LP Deck and Pitch
• What is your compelling story? How will you differentiate from the many other seed funds out there? What makes you uniquely qualified to generate superior (3x+) returns? How will you help your companies succeed?
• In the beginning your pitch and deck may be awful, as I’m sure mine was, but it’ll keep improving as you iterate. For those VCs close to you, ask for feedback on it. Try boiling your main value props down to 2-3 short bullet points – those key advantages your fund brings to the table. Once I did that, the pitch resonated much better with LPs.
• Special thanks to my mentors David Cohen and Brad Feld. They gave their time and helped me think through nearly every aspect of the fund before I launched it, and continue to provide sage advice. I’ll always be grateful for that.
2) Taking the Leap: The Raise
Set Your MVFS (Minimum Viable Fund Size)
Okay I totally just made up MVFS, but one of the great pieces of advice I got early on was to figure out the smallest fund size that will make the economic model work and use that as your minimum target. If you raise more, great! But be prepared to only raise your minimum. For Firebrand that was $7M.
On 8/1/16 I started fundraising with a $7M target, a crappy deck, and zero contacts in my local high net worth community. Zero. I started with one intro to a well connected person in the community, and fortunately he became a great advocate for me and Firebrand. That didn’t make it easy but it was a start.
From the start I decided to raise the fund by doing multiple closes, which turned out to be about one close every three months. Raise in chunks, invest it out in chunks, rinse and repeat. I spent about 50% of my time fundraising and the other 50% on deal flow, diligence, helping our founders, organizing fund events, and admin. It was a crazy period but the strategy had several benefits:
Making investments early on showed we were for real
That first close was modest but enough to make our first three investments: FitBark, Sickweather and Dwolla, where we co-invested alongside USV and Foundry Group. People could see the fund was for real and actively investing.
We could get our investment cadence started
We make about 10 investments per year so it was important to get that going and stay on that schedule. Multiple closes made that possible.
LPs could track our companies’ progress
As we repeated that pattern of doing closes and making investments, potential LPs could see what kinds of companies we were investing in and how they performed in the short term. New LPs committed and several existing LPs increased their stakes over time because they liked how our companies were progressing. The longer I fundraised, the more progress our companies made, the more attractive it became for LPs. By the time we did a final close of the fund we had already invested in 13 companies.
Be Prepared for the Fundraising Rollercoaster
Some VCs love fundraising. I don’t. I do love meeting new people, and that was the most rewarding part of fundraising for me. I learned that managing my emotions was key during the fundraising rollercoaster. I had great runs where for 3-4 weeks I only heard “yes”. I also had nerve-wracking plateaus where I raised little or nothing for 4-6 weeks. This continued for the entire fundraise.
Even as my pitch improved and the fund size grew it never got faster or easier. It was still a matter of building relationships and trust, one LP at a time. I was making solid progress raising from local LPs, so after our second close I decided to stay focused on my community. Every GP has a different situation – for me, the local focus turned out to be the right call. It helped with referrals and organically created a nice civic narrative for the fund.
As much as I enjoyed getting to know amazing people I otherwise wouldn’t have met, the exhaustion started creeping in after 6 months of fundraising and two closes of the fund. I took a short vacation to recharge and then went back at it. After 6 more months I could’ve closed the fund at a decent number – I think we had about $10M in commitments at the one year mark. But it was early September and I believed there was more local demand and folks just needed to resurface after the summer. I did another mental reset and decided to extend the raise for another six months. I’m glad I did!
Our initial $7M target grew to almost $18M when I closed the fund last March after 18 months of fundraising. Yep I was a bit worn out – I rarely get sick and I got a cold for a month after the final close. Overall I felt good about raising $17.7M for the first fund, especially since 99.5% was from local LPs. Fundraising was finally done. Right?
3) Fundraising is Never Really Done
My good friend Ari Newman wrote a great blog post a couple years ago called A.B.F. – Always Be Fundraising. It was meant for founders but it certainly applies to GPs too. I recall after about 7 months of fundraising I had reached our initial target of $7M so I asked one of my mentors, “Should I stop?” I really just wanted him to say yes because I was tired of raising and wanted to focus all my time on new investments and helping our companies. He said something to the effect of “Why stop? You’ll always be fundraising anyway, might as well keep going.” I knew he was right and that advice served Firebrand very well.
Fundraising is all about building relationships and that shouldn’t stop just because your raise is finished. I’ve continued to keep the dialogue going with those who expressed interest but didn’t invest. Trust is the most important element in the investor-founder relationship and that is earned over time and multiple touchpoints. Always be fundraising.
4) The Team is Everything
Since I don’t have any partners for Fund I, it was especially important to surround myself with several experienced advisors. Our advisors provide invaluable feedback on every company we’re seriously considering, as well as input on plenty of other questions big and small.
After I closed the fund I hired a fund Associate, Maranda Manning. She and I had worked together at Techstars so I already knew she was terrific. She hit the ground running and has been immensely helpful for deal flow management, diligence, and many other areas.
Being a sole GP can be awesome; it can also be lonely and stressful. Managing a small fund isn’t hugely profitable or glamorous and can feel like a total grind sometimes. Fundraising for 18 months in the Midwest really tested me but when I look back I’m glad it was hard. Call me old fashioned but I believe raising millions of dollars shouldn’t be easy. During the one evening I celebrated the final close, it felt like a great accomplishment. Then it was back to work!
It’s early days for Firebrand. Like any VC, I won’t know how I’m really doing for another 5-10 years. There will be many more years of learnings, wins and losses, ups and downs. It’s simultaneously the most challenging and rewarding job I’ve had. I’m incredibly grateful for my mentors and advisors as well as the many other VCs out there who continue to share their lessons. Above all, I just love working with amazing founders – that’s what gets my adrenaline flowing. After two years, I couldn’t imagine doing anything else!
Great post John, the cadence of multiple closes while actively investing seems to have really helped along the process.
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