There are countless posts flying around the web now about “How to build a startup.” It’s great that all this knowledge has made its way online. On a slightly smaller impact scale, there isn’t a lot of content out there about “How to build a venture fund.” Yet, this topic has become increasingly interesting in a world where tech startups are mainstream, Shark Tank is popular nationwide, where Y Combinator has opened Demo Day to more and more investors, where new funds sprout up every year, more and more.
I have been lucky to know and been mentored by many folks who have actually started VC funds and scaled them into institutions. Some “made it” in their first two funds, like Josh Kopelman with First Round, or Mike Maples and Ann Mira-Ko with FLOODGATE; some quickly ramped large funds and took about a decade to arrive, like Marc Andreessen and Ben Horowitz with a16z; or someone like Fred Wilson and Brad Burnham, who built USV out of the ashes of a previous fund that dissolved; or Peter Hebert and Josh Wolfe from Lux Capital often muse that in building their firm, “we became a 17-year overnight success.” Another co-founder of a multibillion-dollar fund told me what it was like when, 10 years ago, most of their LPs abandoned them, and how they built the firm back up brick by brick.
Depending on how you interpret the data, today there are well over 500 new funds (including Haystack!). Most of them won’t see a Fund II, and very few, if any, will become a permanent part of the venture fabric. There are funds who are ambitious and getting there — some names which come to mind are Felicis, Forerunner, Slow, Initialized, and a few others who have smartly scaled their team and AUM. It is really hard, though. I know a little bit about this pain in trying to make Haystack sustainable across funds. While I don’t have the ambition to build “out” a huge fund with a huge team and scaling capital, raising successive funds is not easy and building out real firm infrastructure is a grind.
For those out there that want to build a real firm, I’d encourage you to carefully listen to this new episode of The Twenty Minute VC with Harry Stebbings. Harry interviews Barry Eggers, one of the four co-founders of Lightspeed. In this podcast, Eggers details his view of the phases the venture capital industry has gone through and recounts some stories about how Lightspeed was able to break through, and how hard it was to get that chance.
As regular readers of this site know all too well, find the entire VC industry fascinating. I’ve been lucky to have seen the inside of a firm like GGV, operating across the U.S. and China, managing billions of dollars and driving returns for their LPs in being early investors in companies like Wish, Buddy Media, OpenDoor in the U.S. and Didi, Qunar, and countless others in China.
Now having been at Lightspeed as a Venture Partner (and running Haystack) for a few months and seeing upfront how they’ve scaled it twenty years into its history, it’s been eye-opening to witness how the firm is structured to have investment partners in Israel, to have franchised early-stage arms in India and China, and how its Select and Growth vehicles are set up to take advantage of opportunities from its various networks. Only a small handful of other venture firms have grown into such global powers, such as Sequoia and Accel. [Of course, that’s not the only model that works in the top tier of VC — cases in point being firms like a16z, Benchmark, Founders Fund, USV, Foundry, Emergence, True, among others — each who have their unique, signature method of operating and taking advantage of their know-how and networks.] Lightspeed companies like AppDynamics, Mulesoft, Nutanix, and Snap (among others) have had incredible outcomes in the U.S. over the last few years; in India, a Lightspeed portfolio company Udaan just hit the billion-dollar valuation mark; and last month in China, Pinduoduo rocketed from $0 to $23B+ in less than four years, going public.
I’d recommend this 20 Min VC podcast conversation with Barry to any investor who is trying to build out and scale up a venture fund. Barry is incredibly thoughtful about what has worked well (and what hasn’t) in the industry, how to bring in fresh new talent and groom them at the fund, and how to create pathways for folks to move up and grow but also to wind down slowly and help the guard change over time.