Up to a few Months ago, the venture market was in a historic bull run that would last the better part of a decade. Many new investors and funds have entered the fray, but the last few years have seen a proliferation of new companies. That trend peaked in 2021, when 270 first-time funds raised a collective $16.8 billion, according to Pitchbook data.
That means there are now nearly 300 firms in the US alone that raised their initial capital in a bull market and are operating in very different market conditions today.
Over the past few months, many established investors have been quick to predict that many new funds will struggle as markets turn sour. But these former VCs are forgetting that the new entrants don’t have to think about their existing portfolio of dozens of startups before making every decision.
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What keeps these first-time fund managers up at night isn’t their survival chances or whether they’ll raise a second fund, but how best to manage their time and assets in a seemingly volatile market. Ariana Tucker, Co-Founder of Consciousness VC, said: “The biggest challenge is to streamline my team’s time, especially at a time when founder support is critical in managing a growing portfolio.
Several such investors, such as Cambrian’s founding partner Rex Salisbury, say the downturn is actually a good thing for new funds, given their long-term goals. But the exit environment for a fund like ours investing so early is more than seven years in the future, he said. “So, in the short-term, it’s been a windfall, if there’s been a windfall, that has started to trickle down into the early stages of the venture market.”
But that doesn’t mean these VCs aren’t careful about what they’re willing to bet on. “Our process for evaluating companies hasn’t changed, but we’ve definitely recalibrated the compass to evaluate the current state of the companies we’re considering investing in, rather than their estimated future value,” said Co-Founder and Managing Partner Giuseppe Stuto, 186.Ventures.
“It makes sense for us to be more thoughtful than we have been in terms of portfolio construction and make sure we’re not overextended on any vintage or ‘company level’ value, e.g., 2021, pre-production, pre-revenue. ,” he said.
So how do these first-time fund managers fare? TechCrunch+ asked six of them to find out how they’re preparing to tackle this volatile market, how this environment has changed their investment approach and their approach to raising Fund II.
We talked to:
- Giuseppe Stuto, Co-Founder and Managing Partner, 186 Ventures
- Ariana Tucker, Sole Doctor and Founder, Conscience VC
- Leslie Feinzig, Founder and CEO, Graham & Walker
- Tom Ferguson, sole practitioner and managing partner, Burnt Island Ventures
- Rex Salisbury, Sole Doctor and Founding Partner, Cambrian
- Marco Demeyers and Alain Jean-Baptiste, Co-Founders and GPs, Ansa Capital
Giuseppe Stuto, Co-Founder and Managing Partner, 186 Ventures
How would you describe your fund’s thesis and structure?
We are a $37 million pre-seed and seed-stage fund focused on multiple industry groups – fintech, web3, enterprise SaaS, digital health and consumer-based innovations. Although we are geographically agnostic, we expect the majority of Fund I investments to be US-based (today we only have one globally in Nigeria).
Our strategy is a seed-level generalist. That said, with our founder/operator background and access to a network of industry leaders in multiple industries, we consider our edge to be our ability to provide practical “0 to 1” company development expertise.
We have a traditional VC vehicle structure with a 10-year life cycle. The team today consists of three full-time employees – myself (Founder, Investment Team), Julian Fialkow (Founder, Investment Team) and Sophie Panarese (Platform & Ops).
How are you preparing for the current, more conservative market conditions after raising funds for the first time in a bull market?
We like to think that we are consistent in how we approach and think about investment opportunities in both bull markets and current markets.
We started investing in September 2021, so we have a fair amount of bull market investing (about 10 out of 11 investments were completed during the bull market). We expect to complete at least three investments after the bull market at the end of August, as we have two outstanding commitments.
Our process for evaluating companies hasn’t changed, but we’ve recalibrated the compass to evaluate the current state of companies we’re considering investing in, rather than their estimated future value.