Connie Loizos, reporter at TechCrunch, in her latest excellent article, ‘A Perfect Storm for First Time Managers,’ makes the reasonable point that venture capital firms usually have a hard time raising their first fund and that is in a bull market; now will be even more challenging.
The advice on how difficult it will be comes from the successful VCs that raised a first fund from limited partners (LPs), which makes sense.
But there is an argument that there is a cohort of managers that might find it easier this time. Not easy of course, just easier than “300 to 400 LP conversations and two years to close”.
This is the 600 or so corporate venturing units with more than a decade’s track record and an established team and sector or regional domain experience. Typically, corporate parents of these units, many of which have top tier investment returns from dozens or hundreds of exits racked up, want to keep the managers tight and provide the capital themselves but in the right sort of macro-economic shock the opportunities emerge to create a franchise able to look after itself with external LPs.
These LPs could come from traditional sources, such as pension funds and life assurers and banks, many of which have complained about lack of access to top tier managers for years and understand the data that better returns come from those with cash to invest after an economic downturn (which is why we said the golden age of corporate venturing was from 2010 to 2016 and were now entering the age of turbulence).
Allied to this traditional group of LPs are cash-rich other investors who spy opportunities, such as private equity firms and sovereign wealth funds as well as secondaries investors, such as HarbourVest that have made a name over the past few years with creative structures to back Telstra and Deutsche Telekom’s units.
In a record year for fundraising last year, Pitchbook noted 21 funds were more than $500m. This class of super manager with multiple offices and funds, such as Sequoia, Andreessen Horowitz, NEA, General Catalyst, GGV, Insight, and TCV, could soon be joined by others also used to investing $100m to $10bn per year.
The industry will then finally scale up to a truly professional asset class as the extra competition will force eventual consolidation.
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