Nikkei Business Daily June 10, 2019

The Future of Venture: RAISE

The face of venture capital is changing: from stuffy “old boy” Silicon Valley partnerships to scrappy, diverse San Francisco upstarts. In the last decade there has been an explosion of new venture firms. According to industry analyst Prequin, almost 100 new first-time funds were raised every year for the last five years, and almost 1,500 total emerging funds were created in the last seven years.

The role of “fund entrepreneur” has become one of the most popular career paths for former start-up executives, and experienced VCs wanting to strike out on their own.  We’re even seeing MBA graduates, fresh out of business schools, starting first time venture firms.

Market barriers have come down enabling this new category of entrepreneurial fund managers. Over the last decade, the cost of launching tech start-ups has dramatically reduced as infrastructure needs have simplified and data has migrated to cloud services.

With less capital needed to launch start-ups, a venture fund smaller than $10M can assemble a portfolio of early seed stage $250K-$500K investments and have a potential for high returns. The first generation of ,micro VCs (or funds < $100M) like True Ventures, Softech and Floodgate, has proven the micro-VC model for over a decade now, outperforming many of the most famous Silicon Valley venture firms.

The biggest challenge for first-time fund managers, or General Partners (GPs), is finding a stable of investors willing to bet on them. The Limited Partners (LPs) that come together to fund a new venture firm can appear in seemingly endless categories. From high net worth individuals, to family offices, to fund of funds, to corporate investors, to highly coveted university endowments and pension funds.

Each has its own specific investment objectives, screening criteria and investment process. And almost every category of LP has an incentive to meet emerging fund managers to gather market information and begin tracking them. A new fund manager could easily spend two years flying around, having pleasant conversations with potential LPs,  yet never able to close on their funds.

Recognizing the lack of a playbook and platform to guide these first-time fund managers to successful close, we partnered with veteran fund manager, Ben Black, and his team at Akkadian Ventures to launch the RAISE conference in 2016.

We designed this event to bring together the most promising new GPs and the LPs most interested in the category of emerging fund managers.  In May of this year we hosted RAISE IV with 160 LPs and 160 GPs in attendance, and heard presentations from 50 exciting firms. LPs tell us that RAISE has become a reliable source for exciting new fund investments. Perhaps most gratifying, a trusted RAISE GP community has formed not just for firm-building and fundraising insights, but also for deal sourcing.

Each year we carefully collect and analyze data profiling the emerging funds at RAISE. We are seeing interesting trends. For example, this year there was a shift from highly specialized funds – for example, firms focusing only on investing in robotics, AI or AR — to more generalist funds. We theorize that over the last five years there has been a trend of funds over-specializing and suffering from being too early or losing market confidence. At the same time we are seeing a marked shift towards firms investing only in specific geographies. This year we were able to tease out firm attributes that seem to correlate with higher returning funds: for example, firms with more than one GP, and a diverse partner profile.

Every year we are seeing an increase in the diversity of General Partners represented at RAISE, with a refreshingly broad spectrum of geographic locations, nationalities, ethnic profiles, professional backgrounds, academic affiliations and of course investment focus.  This year for example, two-thirds2/3s of all firms had a female or minority GP. We are witnessing an exciting generational shift as we observe the future face of venture capital at RAISE.

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We place a high priority on meeting with start-ups that are referred by someone we know. If you aren’t already connected to our network, feel free to send us an email. Forgive us in advance for only responding to cold introductions that are absolutely fascinating.

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