Does NYC Need Another Early-Stage Investment Fund?
This is a question I’ve been pondering for quite some time. I’ve gotten pretty involved in the early-stage investment scene over the past three years, having done, wow, 22 investments. It is hard to believe there have been so many really good entrepreneurs, ideas and business models that warranted funding, and that could benefit by having me as an investor, Board member and/or adviser. I have learned a lot, built some great personal and professional relationships and made a few bucks in the process. But I have been doing this as a long ranger with my own money, acting in the capacity of a “super angel” somewhere between the world of straight-angel investors and venture capitalists. And I feel that maybe I’m not really maximizing my impact due to my limited resources and limited bandwidth.
My question is: does it make sense to institutionalize, to raise outside money and to build a real business out of this? Would real value be created by my stepping up, raising money and getting serious about the early-stage investment business? Do Silicon Alley and Silicon Valley really need another guy like me? I am deeply conflicted, partially because I already know a lot of really good early-stage investors in NYC and elsewhere but also because being a “VC” has a somewhat pejorative ring to it. I don’t consider myself a VC; I tend to take more risk, invest earlier and leverage the hell out of my fairly robust and diverse rolodex. I guess in this way I am an angel, but a very active and connected angel who would like to put a lot more money to work than I have in the past. The deal flow is there; I would simply step up my deal size and be able to more significantly participate in follow-on rounds.
Anyway, from time to time I muse about career stuff on this blog, and this is one of those times. Trading, hedge fund management and early-stage investing. My three work passions. It is a pity that I can’t do them all, simultaneously. Wouldn’t that be a cool trick…
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COMMENT:
AUTHOR: fred wilson
EMAIL: fred@unionsquareventures.com
URL: http://avc.blogs.com
DATE: 03/19/2008 12:07:17 AM
peter thiel does all three and seems to do them well.
the question you ask in the title of this post is not the question that needs to be asked.
the world always needs good supportive early stage investors.
the question is do you want to go through the agony of insitutionalizing what you do?
if you are willing to do that, find an experienced early stage investor to partner with and go for it.
but be prepared to spend a long time getting the fund raised.
and the current environment is going to make it harder
fred
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COMMENT:
AUTHOR: Yaser Anwar
EMAIL: yaser@yaseranwar.com
URL: http://www.linkedin.com/in/yaseranwar
DATE: 03/19/2008 01:26:12 AM
I don’t know much, or anything, about NYC VC fund capacity, but I think there’s always money for individuals w/ your background.
I look at companies like KKR, TPG, Carlyle, Bain (5.5$ bn fund), RenTech (6bn more for their inst. equities “100 bn” fund) etc., all have raised lots of money recently (ok maybe not lots vs. the ‘go-go’ years of 02-05) because of their investing savvy.
SWFs and Pension Fund money is going to keep growing at a clip of 20% till 2011 (according to Pensions & Investments) and they’re increasing allocations to everything from commodities to VC to PE to HFs, so don’t see why your fund can’t get a piece of that.
Even ex-SWFs/PFs, lots of institutional investors out there (i.e. Pequot, Tudor Ventures) starting up VC funds, so some of that too (hey, HF + VC under the same roof, that would be cool).
I think you should definitely go for it. Or, even if you the HF way, you can always blog anonymously ;)
Yaser
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COMMENT:
AUTHOR: howard lindzon
EMAIL: howard@lindzon.com
URL: http://www.howardlindzon.com
DATE: 03/19/2008 04:12:58 AM
go with your awesome gut
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COMMENT:
AUTHOR: Wayne Mulligan
EMAIL: wayne@tickerhound.com
URL: http://insanewayne.blogspot.com
DATE: 03/19/2008 10:22:05 AM
I guess it depends on what you envision an early stage fund to look like.
Just from reading your posts it seems like you enjoy being a bit more involved with some of the companies you invest in — as opposed to a passive investor who plunks their money down and lets it ride.
If that’s the case then I think there’s certainly a niche for a “Y Combinator-type” early stage fund. I think what Paul Graham and his crew have been doing is amazing and it’d be fantastic to see a similar pool of capital, knowledge and energy come to the New York start-up scene.
However, I also agree with Fred, getting the funds together for something like that is going to be rough in this environment. But on the other hand, it’s in times like these when companies will need funding the most, have to be the most creative with their models/capital and an investor stands to make the most money.
-Wayne
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COMMENT:
AUTHOR: Harry DeMott
EMAIL: hdemott@kingstreet.com
URL:
DATE: 03/19/2008 10:27:06 AM
Why can’t you do all 3. I do.
Here at King Street - our main business is a very large distressed debt hedge fund - but in my capacity as an analyst here I have been able to do venture investing alongside the more day to day trading and investing we do.
I would argue strenuously that the benefits of the early stage investing are huge for your fund and trading business. In this REG - FD world - you end up so far ahead of the curve in terms of research into your chosen areas that you truly should have an advantage.
Each of these businesses feeds on itself.
I agree with Fred above - it is a slog raiisng money - and dealing with everything that comes with it - but if you could raise a smalish fund that has traditional venture economic and lockups but with the caveat that you can draw down the money right away to trade with like a hedge fund - then you will indeed have the best of all worlds.
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COMMENT:
AUTHOR: PRoales
EMAIL: proales@proales.com
URL:
DATE: 03/19/2008 11:30:16 AM
Instead of jumping into the deep end with a full institutionally backed fund, why not just wade into the shallow end of the pool with a “friends and associates fund”
No big institutional dollars, and all that requires, but a formalized fund with your private money and some select associates private dollars. Not a angel network, but a formal fund, minus the endowments.
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COMMENT:
AUTHOR: Trebuchet
EMAIL: jimgolden@trebuchet-analytics.com
URL:
DATE: 03/19/2008 03:59:40 PM
Yes. And let me know when you do - I’ve got some ideas…
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COMMENT:
AUTHOR: Nate Westheimer
EMAIL: nate.westheimer@gmail.com
URL: http://innonate.com/
DATE: 03/22/2008 04:28:02 PM
Roger,
Great comments above.
I’ll echo the fear of institutionalizing something you love. Smart investing as Mitigated Risk sounds like something you love — it’s what you can do from a purely personal roll. Would you love Managed Risk as much? That seems to be what comes with institutionalized investment.
That being said, I’ll tell you what no one has done so far:
Create a transparent, first-stop for start-ups.
This is the YCominator idea. This is also what David S. Rose is moving towards with his soon-to-be-announced Spark Space and accompanying services for startups.
Whatever it is, it’s a totally clear process with stages, milestones and paths to investment or abandonment. Institutionalized hand-holding and shoulder-stepping.
YCominator and TechStars does this, and it’s time for someone to do it in NYC.
Nate
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COMMENT:
AUTHOR: Yaser Anwar
EMAIL: yaser@yaseranwar.com
URL: http://www.linkedin.com/in/yaseranwar
DATE: 03/24/2008 06:37:20 AM
Not sure if you read this blog, but she’s a smart entrepreneur I’ve come across recently who talked about a seed funding/VC related void she notices in the market (not NYC though, I think it’s more of a generic post).
http://sramanamitra.com/2008/03/22/first-time-entrepreneurs/
Thought to bring it to your attention.
Yaser
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2 years ago
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