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A Quiz on First-Time VC Funds

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This presentation contains a quiz about first-time venture funds as well as data and tips that may be useful to new VC fund managers. The presentation covers topics such as how many new funds get started per year, who provides capital to those funds, and how long it take to raise a new fund, as well as tips for approaching LPs.
I presented this quiz to the audience at the Kauffman Fellows Module on June 15, 2016. Special thanks to Jewel Savadelis, Jorge Torres and the rest of the Kauffman Fellows for your support and ideas!

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A Quiz on First-Time VC Funds

  1. 1. A Quiz on First-Time VC Funds (Plus 5 Tips for new GPs) 6/15/2016 1 Dan Abelon @dabelon Kauffman Fellows Module: June 15, 2016
  2. 2. 1. The Quiz: How much do you know about First-Time Funds? 2. Tips for First time funds 6/15/2016Dan Abelon @dabelon 2
  3. 3. Question #1: Why do First-time VC Funds Matter? 6/15/2016Dan Abelon @dabelon 3
  4. 4. Question #1: Why do First-time VC Funds Matter? 1. No industry including VC can thrive without innovative new entrants 2. Many regions lack high-quality established funds 3. New funds exhibit above average performance* 4. ALL great VC firms started with Fund I 6/15/2016Dan Abelon @dabelon 4 *Source: Harris, Jenkinson, Kaplan, Stucke. 2014. Has Persistence Persisted in Private Equity? Evidence from Buyout and Venture Capital Funds.
  5. 5. Question #2: According to GPs, what is most challenging about starting a new fund? 6/15/2016Dan Abelon @dabelon 5
  6. 6. Question #2: According to GPs, what is most challenging about starting a new fund? 1. Generating LP intros 2. Designing persuasive fundraising material 3. Team’s professional development 4. Defining legal structure 5. Choosing technology to support your fund 6/15/2016Dan Abelon @dabelon 6Source: My survey of 40 emerging GPs. 2015.
  7. 7. Question #3: How many first-time funds raise capital per year? 6/15/2016Dan Abelon @dabelon 7
  8. 8. Question #3: How many first time funds raise per year? 0 10 20 30 40 50 2012 2013 2014 2015 2016 (Q1/Q2) Number of New VCs Raising Capital 6/15/2016Dan Abelon @dabelon 8 ~40 new funds per year. 200+ new funds raised from 400+ LPs the last five years Source: Pitchbook (last five years globally)
  9. 9. Question #4: Who funds first-time funds the most? Corporations? Other VCs? HNW individuals? 6/15/2016Dan Abelon @dabelon 9
  10. 10. Corporates and HNW lead, but many types of entities fund first time funds 6/15/2016Dan Abelon @dabelon 10 0 10 20 30 40 50 60 70 Question #4: Who funds first-time funds the most? Source: Pitchbook, 2012 - ’16, globally. Number of First-Time VCs Funded by LP Type
  11. 11. Question #5: How many LPs specialize in first-time funds? (10+ investments the last 5 yrs) <10 LPs? 25 LPs? 50+ LPs? 6/15/2016Dan Abelon @dabelon 11
  12. 12. Question #5: How many LPs specialize in first-time funds? 6/15/2016Dan Abelon @dabelon 12 0 50 100 150 200 250 300 350 400 1 2 3 - 10 10+ Number of first time funds backed per LP 1 Only one institutional LP backed more than 10 first- time VC funds the last 5 years Source: Pitchbook, 2012 - ’16, globally.
  13. 13. Question #6: Which LPs back the most first-time funds? University of Texas Mgt Company? European Investment Fund? IP (Danish Pension Fund)? 6/15/2016Dan Abelon @dabelon 13
  14. 14. EIF is the top investor globally in first-time VC funds. Three top LPs are VCs themselves. LP Number of Commitments European Investment Fund (EIF) 16 IFC 7 BPI France 5 Industriens Pensionsforsikring (corp pension) 5 University of Texas Investment Mgt Co 4 Kleiner Perkins 4 Accel 4 Sequoia 4 6/15/2016Dan Abelon @dabelon 14Source: Pitchbook, 2012 - ’16, globally. Question #6: Which LPs back the most first-time funds?
  15. 15. Question #7: What is the median first-fund size? $10M? $25M? $40M? 6/15/2016Dan Abelon @dabelon 15Source: Pitchbook
  16. 16. 6/15/2016Dan Abelon @dabelon 16 0 10 20 30 40 50 60 70 <10M 11-30M 30-100MM 100-250M 250M+ Question #7: What is the median first-fund size? Fund sizes vary. Median first-fund size is surprisingly high - $40M Source: Pitchbook, 2012 - ’16, globally.
  17. 17. Question #8: How long do GPs think it will take to raise a first-time fund? 1 year? 2 years? 4 years? 6/15/2016Dan Abelon @dabelon 17
  18. 18. Question #8: How long does it take to raise a first-time fund? 6/15/2016Dan Abelon @dabelon 18 12 22 43 0 5 10 15 20 25 30 35 40 45 50 Min Median Max Median GP expectation is 22 months, although some GPs expect fundraising to take up to 43 months Source: My survey of 40 emerging GPs. 2015.
  19. 19. Question #9: What do these VCs have in common? 6/15/2016Dan Abelon @dabelon 19
  20. 20. Question #9: What do these VCs have in common? 6/15/2016Dan Abelon @dabelon 20 All are examples of VCs who have funded first-time funds. (Thanks for paying it forward)
  21. 21. Question #10: What are ways to support GPs who are starting new funds? 6/15/2016Dan Abelon @dabelon 21
  22. 22. • More information/training for emerging VCs • Increased opportunities to form community among emerging VCs • More data on which LPs are open to investing in emerging VCs • Increased research on predicting emerging fund success* 6/15/2016Dan Abelon @dabelon 22 Question #10: What are ways to support GPs who are starting new funds? *See Kaji, Arnold. 2016. Another Measure of Seed Fund Performance.
  23. 23. 5 Tips for First-Time Funds 6/15/2016Dan Abelon @dabelon 23
  24. 24. 1. Understand LPs’ goals Potential LP Goals • Access to long term partners to grow exposure to VC • Strategic reasons (e.g. direct deal sourcing) • Improved economics vs. existing funds* • Supporting a friend/family member 6/15/2016Dan Abelon @dabelon 24 *Source: Harris, Jenkinson, Kaplan, Stucke. 2014. Has Persistence Persisted in Private Equity? Evidence from Buyout and Venture Capital Funds.
  25. 25. 2. Think hard about how to stand out. Most emerging GPs THINK they are differentiated. Why is your fund attractive to LPs? (from my survey of 40 GPs) 1. Fund has an innovative strategy (83%) 2. Proprietary network (63%) 3. Entrepreneurial background (53%) 4. Strong personal brand (30%) 5. Great track record (23%) 6/15/2016Dan Abelon @dabelon 25Source: My survey of 40 emerging GPs. 2015.
  26. 26. 3. Build a track record creatively 6/15/2016Dan Abelon @dabelon 26 Bring an investor with a strong track record onto your team Find a HNW friend. Invest their $$ deal by deal. Leverage existing platforms to syndicate deals
  27. 27. 4. Reflect upfront on how you might entice potential LPs Would you grant special terms to attract LPs? (from my survey of 40 GPs) 1. Right to invest in future funds (90%) 2. Coinvestment rights (77%) 3. Information rights (65%) 4. Access to your pro rata (52%) 5. GP interest in current fund (35%) 6. Partial ownership of your firm (23%) 7. Fee discount (16%) 6/15/2016Dan Abelon @dabelon 27Source: My survey of 40 emerging GPs. 2015.
  28. 28. 5. Be proactive in helping LPs evaluate the soft stuff • How long have the partners know each other? • How do you make decisions as a group? • Have you been through tough times together? • How do you manage conflict? • To what extent are you really being yourself in meetings with LPs? 6/15/2016Dan Abelon @dabelon 28
  29. 29. Thank you and good luck! Twitter: @dabelon 6/15/2016Dan Abelon @dabelon 29

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