A repeating notion we’ve found while raising money, as a budding new venture fund and as a bunch of guys with no track record, is that we want to appear as ordinary as possible.
By ordinary, I mean that we don’t want to do anything that is not traditional to the world of venture funds. In doing so, we concentrate the discussion on ourselves and our value, versus why a bunch of inexperienced amateurs want to try something different and potentially introduce more perceived risk.
Some of the things we have encountered that we wanted to do, but are very wary of, or status-ing down, or not doing at all anymore are:
1. We are going to have larger than normal fees. Normal fees in venture funds are about 2% of the fund annually. We need more fees because we think we can do more with less cash, which also means we need more staff to hire and help us manage our investments.
2. We were going to start an incubator but are not going to do this or even use the word ‘incubator’. We have found that a huge amount of the investor community have suffered greatly with the spectacular flameouts of virtually every incubator through the Internet bust years. To suggest that we, a bunch of newbies, could do it better would probably not be believed. The funny thing is that incubators actually do exist in different forms within some venture funds now. Many use the term ‘Entrepreneur in Residence’ to describe people who sit with venture firms, dream up new ideas, and try to create businesses out of them. The second funny thing is that even though we were thinking of doing an incubator in the beginning, we still want to do an internal think tank. But now we’ll have to shove that into our list of projects, not draw attention to it, and face investor approval to begin it.
3. We intend to deploy cash as soon as we get it. There are already several entrepreneurs who want to work with us but need cash right now. Traditionally, the fund raises money first and then begins to deploy cash. We, however, want to invest as soon as possible. This method brings more risk to early investors as their full investment could be deployed to early investments while traditionally the risk would be spread out to other participating investors. However, we do want to diversify as soon as possible to minimize risk to these early investors.
Everything else is pretty much in line with what experienced investors would see with any other venture fund’s term sheet. So hopefully the above three points won’t cause too much consternation, confusion, or make them wary of us as we ask for their money.
Doing this without a track record doesn’t give us much leverage in being creative in setting up our fund, but on the other hand, we don’t need to be too creative at this point either. And especially if it is a detriment to us raising money, we won’t do it.