The Value of Fundraising

In 2012 my partners and I raised our sixth fund, aptly named August VI.  August VI is a $550 Million fund, with $300 Million focused on early stage opportunities and $250 Million designated for what we call "Special Opportunities" (spinouts, take private transactions, later stage opportunities, etc.).  As we have done since 1995, we will continue to pursue companies in the information technology space broadly (software, hardware, communications, Web, etc.).  The fundraising behind us, we can now focus on finding great new companies in which to invest.  But as we start the new year, I want to take a minute to reflect on the fundraising process.

VCs don't like to talk about our own fundraising.  We like to pretend that the money magically appears in our bank accounts.  But that's not quite true.  Venture Capitalists are investors, and the vast majority of the money we invest is not our own.  Where does the money come from?  We go out and raise it — from foundations and endowments and fund of funds (who raise it from other investors).

Our fundraising process is not so different from that of the entrepreneurs who pitch us.  We approach investors who can write big checks and we convince them that tens of millions of dollars invested today might turn into hundreds of millions of dollars tomorrow.  We convince them to invest in our funds despite the long odds.  We convince them to invest in our funds despite the innumerable alternatives they have.  We convince them to invest in us despite the countless other investors who are promising outsized returns on a daily basis.  And if we are successful in convincing these financiers to invest in our funds, we'll spend the next decade or more working hard to produce great returns.

I have always felt that the fundraising process is an important part of company building — not just as a necessary evil, but as an intrinsically valuable exercise.  Having just raised my own "round of funding," I am more convinced than ever.  The fundraising process acts as a catalyst in a number of valuable ways that are worth exploring:

  • The fundraising process forces you to better define and defend your business strategy.  While an executive summary may allow you to speak in generalities, face to face fundraising requires specificity.  A defensible strategy is not something you can fake.  Potential investors will dig into your assumptions in ways that you may or may not have considered.  No matter what the outcome, the conversation is a valuable one.