Category: Contributed Articles

Why So Many Small Emerging Managers Don’t Use Placement Agents


This post is by David from David Teten's blog


The pros and cons of choosing a placement agent for small funds

It would make life a lot easier for emerging managers if they could outsource the entire fundraising process. But can you?

Empirically, few small emerging investment managers hire placement agents, particularly in venture capital. And even the firms that hire a placement agent almost always still have to run their own internal process. 

Homebrew doesn’t report hiring a placement agent for their Fund I, despite (or because of) a well-pedigreed team. Greycroft in 2010 also had an experienced team, but didn’t either. Instead, they hired an outside assistant – not a placement agent – to help in the process. 

As Greycroft said in an essay: “Since we were a small fund, it would have been overwhelming to us and our small administrative staff to set up the meetings and follow ups, fill out questionnaires (which for the most part fall into a dark hole), and respond to the myriad of questions which occur during the due diligence process. Although not a placement agent charged with raising the money, this person was an important and critical member of the team and was a key factor in helping us to keep track of where we had been and where we were going – ‘If it’s Tuesday, it must be Belgium.’ ”

Greycroft’s results give you a sense of the complexity involved: The firm said it  had 515 contacts with potential LPs; roughly 250 passed for various reasons and 100 were non-responsive. (Read more...)

15 Steps to Fundraising for Your New Venture Capital or Private Equity Fund


This post is by David from David Teten's blog


Launching is easy; fundraising is harder. I’ve been fortunate to be a Partner at two different VC firms over the past 9 years, and we’ve grown AUM 10X both times. If you take the fifteen steps below, you’ll have the core of a high-performing fundraising and investor relations function. 

  1. Build the firm as much as possible before you solicit limited partners. 

The more baked you are, the more investable you are. The best possible move is to invest in and warehouse some special purpose vehicles that fit your strategy. However, that may distract you from the larger goal of raising a fund, not just a Special Purpose Vehicle.

The next best move is to build your core team, e.g., recruit an Advisory Board, Venture Partners, and EIRs. For ideas, see How Executives Can Work from Home with Private Equity and Venture Capital Funds.

Lastly, gather feedback. Yohei Nakajima, Founder of Untapped.vc, said, “Before pitching LPs and building my firm, I talked with over 50 people I knew to get feedback.” 

  1. Set up the basic marketing toolkit: deck, website, accurate online databases, and social media accounts. 

It’s virtually mandatory to develop a detailed, data-backed deck, and ideally a video pitch. Your materials should ideally meet the expectations of the Institutional Limited Partners Association, even if you’re not targeting institutions. Keep these documents constantly up to date, so all team members are aligned on key numbers, e.g., total dollars raised so far. You’ll look unprofessional if you’re not coordinated. For (Read more...)

Flexible VCs With Structures Between Equity and Revenue-Based Investing


This post is by David from David Teten's blog


(co-written with Jamie Finney, Founding Partner at Greater Colorado Venture Fund. His work on VC and small communities can be found at greatercolorado.vc/blog. )

This essay is part of a series on alternative VC:
I: Revenue-Based Investing: a new option for founders who care about control
II: Who are the major Revenue-Based Investing VCs?
III: Why are Revenue-Based VCs investing in so many women and underrepresented founders?
IV: Should your new VC fund use Revenue-Based Investing?
V: Should you raise venture capital from a traditional equity VC or a Revenue-Based Investing VC?
VI: Revenue-based financing: The next step for private equity and early-stage investment. This is a summary of: Revenue-Based financing: State of the Industry 2020.
VII: Flexible VC, a New Model for Companies Targeting Profitability

VIII: The Leading Flexible VCs, With Structures Between Equity and Revenue-Based Investing

In our previous essay, we introduced the concept of Flexible VC: structures which allow founders to access immediate risk capital while preserving exit and ownership optionality. We list here all of the active Flexible VCs we have identified, broken into these categories: revenue-based; compensation-based; and blended return streams. Please contact us if you are deploying capital using this strategy.

Revenue-Based Flexible VCs

These investors are paid back primarily based on a percentage of revenues.

Capacity Capital, based in Chattanooga, Tennessee, was launched in 2020 with a primary focus on the Southeast. Jonathan Bragdon, CEO, describes Capacity as “a team of founders-turned-funders making non-dilutive, founder-aligned investments (Read more...)

Flexible VC, a New Model for Companies Targeting Profitability


This post is by David from David Teten's blog


(co-written with Jamie Finney, Founding Partner at Greater Colorado Venture Fund. His work on VC and small communities can be found at greatercolorado.vc/blog. )

This essay is part of a series on alternative VC:
I: Revenue-Based Investing: a new option for founders who care about control
II: Who are the major Revenue-Based Investing VCs?
III: Why are Revenue-Based VCs investing in so many women and underrepresented founders?
IV: Should your new VC fund use Revenue-Based Investing?
V: Should you raise venture capital from a traditional equity VC or a Revenue-Based Investing VC?
VI: Revenue-based financing: The next step for private equity and early-stage investment. This is a summary of: Revenue-Based financing: State of the Industry 2020.
VII: Flexible VC, a New Model for Companies Targeting Profitability

VIII: The Leading Flexible VCs, With Structures Between Equity and Revenue-Based Investing

Of the Inc. 5000 companies, only 6.5% raised money from VCs and 7.7% raised from angels. Where else can fast-growing companies get funding?

More and more startups are pursuing Revenue-Based VCs, but “RBI” doesn’t fit everyone. A new category of VCs have emerged offering a hybrid between VC and RBI, which we call “Flexible VC”. 

From RBI, Flexible VCs borrow the ability to reap meaningful returns without demanding founders build for an exit. From traditional equity VC, Flexible VC borrows the option to pursue and reap the rewards of an outsized exit. Every Flexible VC structure allows founders to access immediate risk capital while preserving exit, growth (Read more...)

An Investor’s Personal Social Media Tech Stack: In the future, everyone will be famous for 15 followers


This post is by David from David Teten's blog


What tech stack should a microinfluencer use?

Most investors including me spend most of our day doing the same things people have always done in the job: in my case, due diligence, deal execution, etc.  However, being a “microinfluencer” is now also part of the job description. 

In the future, everyone will be famous for 15 followers. Traditional celebrities or influencers with millions of followers have a large service industry and tech stack to serve their needs. But the standard toolkit of a microinfluencer is still evolving.  

The challenge is that my time and money budget for “influencing”–content creation and marketing– is minimal. Also, since I’m not trying to be a full-time marketer, I can’t use some of the standard celebrity techniques. I can’t pick fights on Twitter; date other celebrities; or swear a lot at conferences. These vectors work for a lot of celebrities, and for some businesspeople and politicians, but I’m uncomfortable with them and it will impede my ability to do the rest of my job. Plus, my wife doesn’t let me date celebrities.  

Another difference: Traditional influencers rely heavily or purely on virtual marketing, because that scales. But for B2B sales, meeting people in person is often mandatory. Sadly, no one is buying a ticket to my latest blockbuster movie for $10.  They’re taking a $1m check from me, or giving $5m to me as a limited partner. Gordon Platt, President, Gotham Media, observes, “You may meet people on-line, but when’s the last time (Read more...)