A little over a year ago, I was talking to one of our GoingVC alums who had been trying to launch a venture firm. Someone I would have written a check to once their Fund 1 came online.
But you know how the market is for new firms. Unless you came from a firm that starts with an ‘a’ and ends with a ‘z’, or rhymes with “NBA” – you are looking at a megagrind with an incredibly low chance of success.
So in response to the market conditions, we got creative and came up with a model that felt like a win-win:
● They get ~2 years of “emerging manager” sized salary
● They hustle like heck, running deal-by-deal syndicates, building onto their existing track record
● Their backers (including me) get a percentage of any fee and carry through the first few funds
● They (hopefully) raise a dedicated fund, and then another, and then another …
Sounds like a step-by-step process, a recipe almost. In truth, it took over a year from the time that the GP and I had workshopped the structure and terms (glad they did the spreadsheet and not me – that thing was hairy!) to the money getting wired to get them started.
Here are 4 things I’ve learned about the process so far:
1. Creative dealmaking can take a while
This isn’t the kind of deal where you download a template from <insert your favorite big VC law firm name here> and everyone signs, and that’s it. It took about a year from the idea of me suggesting “Hey, maybe we could help stake you,” to them coming back to me and saying “Hey, I found pretty much all the money for this – you still want in?”
2. Emerging managers are founders in every sense of the word
I see this GP busting their hump, every dang day. It looks and feels like a venture-backed founder in action. Same intensity, same everything-on-the-line energy, same relentless focus.
3. It’s a team sport
I’m in Slack with the GP and the main financial backer, seeing what deals are being talked about, chiming in with ideas, etc. We also do a monthly call where we review and debate firm KPIs, discuss firm building, and the like.
It’s been a lot of fun to collaborate in this way, versus just writing a check and reading quarterly updates. And it also builds trust. And speaking of trust…
4. Trust is all you have
Sounds cliché, but it is 100 percent true. I remember thinking it was crazy when a founder I know told me one of his investors just wired without signing docs. And now I’ve gone and done that, too. Which cemented for me (and for my co-investor in the staking) that I trust the heck out of this person I’m backing.
The Bigger Picture
This deal didn’t happen the way we originally planned – but it still happened.
Maybe that’s the moral of the story…
