Starting a Venture Capital Firm

News is breaking tonight of Andreesen Horowitz successfully raising their second fund. Not only were they able to raise more than double the size of their $300M debut fund but they completed the raise in a mere 3 weeks. A phenomenal feat by any firm, let alone a group that has been in existence just over 1 year. Its amazing to see the brand they’ve been able to build in such a short amount of time. Having worked with Ben as a co-investor in Foursquare I can assure you the institutional investor response to their fund was well deserved. They’re pros and are building an organizations tuned to the needs of the companies they back.

But, not every new venture fund is founded by an all star team, present author included. And, even those firms that have an all star roster of seasoned investors or successful entrepreneurs rarely receive immediate interest in a new firm.

I’ve watched a steady stream of fundraising success stories hit the press lately, many of which appear to be very simple raises with very few surprises and very few nights of sleep lost by the partners fretting about whether the fund would actually close or not. Unfortunately, these more humanizing stories don’t get much play and, as a result, I think there’s a misperception in the market that VCs operate in a world of ease and entitlement where cash flows freely and new funds are raised in weeks, not months or years. Unfortunately, I think that perception ends up pitting us against the stress of sleepless nights and gut wrenching risk taking that the entrepreneurs we back face and a friction sets in. 

The reality is, starting a new venture firm can be really tough. No matter how you plan your raise and hone your pitch, there are always more interesting or successful firms than yours in market all competing for the same allocations from the same group of institutional investors. Some get raised and make the press, some require multiple attempts and false starts before they eventually make it over the finish line, but many many more never get raised, partnerships disband and simply fade away.

As we were setting out to raise out first OATV fund, I gave a friend of mine a call who had recently closed the first fund for his new firm. From the outside, it looked like a smashing success, but when I got him on the phone I heard something I hadn’t anticipated. What looked like an overnight success had actually taken nearly three years from the time the idea for the firm was hatched to the final close of the new fund. I’ve not been able to shake the point in the call where he took a long pause then said, “unless you’re willing to sacrifice everything to get your fund raised, don’t do it. Every relationship you have will get pushed to their limits, every sense of normalcy will be lost and every shred of success you’ve ever had will get tested, marginalized and refuted. You have to have an unhealthy level of commitment to get to a close”.

The subject of starting a venture firm is near and dear to my heart and its one that I don’t think has been very well documented. I think it could be instructive for entrepreneurs to get a peek behind the curtain of getting a firm off the ground and they might even be heartened to see some of the parallels of launching a start up.

So, if you’ll indulge me, I’d like to spend time over a series of posts outlining some of the backstory behind the founding of OATV, our strategy and our fundraising. I hope it can shed light on some of the dimmer lit corners of the venture capital business. I hope its entertaining. If nothing else, I hope I can be cathartic for me.

If there are any specifics you want me to zoom in on feel free to ask and I’ll try to incorporate your questions into my posts.