July 15, 2024


Technological development

5 lessons we’ve learned from building a venture fund from scratch • TechCrunch

5 lessons we’ve learned from building a venture fund from scratch • TechCrunch

This month, we’re five years into building Contrary. Along the way, we’ve raised hundreds of millions from some of the world’s top institutions and have been fortunate to back startups like Ramp, Anduril and many others.

But just like the stories of the startups we back, the journey has taught us a number of lessons the hard way.

I’ve been reflecting on our history as we hit this milestone and wanted to share a few things that I wish I knew five years ago.

Early logos are important

One of the few regrets I have is that we didn’t go logo-hunting early. We didn’t chase hot companies that were raising rounds led by household name firms. Instead, we stuck to our knitting on Fund I, leading rounds in startups and teams we were convinced in and had sourced via our own infrastructure. I was under the impression that if we did precisely what we said we’d do — lead rounds, back great talent, bring a unique model to market — we’d stand out.

Turns out, when you’re building a venture firm from scratch (limited track record, didn’t work in venture prior, etc.), logos matter. They matter for prospective LPs, who use them as a proxy for access; they matter for your peer set, who use them as a proxy for how sharp you are; and they matter for founders, who will immediately head to your website and see if you’ve backed name-brand startups.

When starting a venture fund, you should expect to barely have an understanding of whether you’re competent at the role within 3 to 4 years.

Fast-forward to today. Ironically, our Fund I is one of the best of its vintage year, according to Cambridge Associates benchmarks. But that performance took five years to blossom, and it made raising Fund II more difficult. I once had an LP ask, “Have you invested in any startups I’ve heard of?”

It’s long stopped being an issue, but there’s no doubt in my mind that logo- hunting would’ve saved us time in the early years.

Reputation is critical

In an industry where your reputation and brand are the most important parts of building a firm, getting started from day zero is critical. Early logos are just one piece of the puzzle.

Invest heavily in building meaningful relationships with well-respected partners, founders and LPs. Send them relevant, high-quality deals for free; become Twitter friends; go to events; co-invest in firms; and cold email them and grab coffee. Do whatever it takes, because relationships are currency in more ways than one.

As an example, one of the primary ways LPs will evaluate you and your fund is by aggressively checking references with their existing venture managers. They’ll ask if partner X has heard of you, if they’ve worked with you, and if they’d bring you into deals.

This requires brand awareness at the bare minimum and ideally includes years of collaborating and producing stellar results. The best way to build your reputation is by sending deals to investors that ultimately make them lots of money.