May 23, 2022

You have social capital in your industry and access to popular startups. You know the best investors. You are smart, busy, you know what you need. It’s almost inevitable, and maybe even your destiny: you become a venture capitalist. So you ask the venture capitalists you know, how do I raise my first capital? You ask me, Katrina Fake, and I answer the opposite: no.

Don’t start fundraising.

Start with SPV.

SPV (Special Purpose Vehicle) is an underrated and overlooked way to infiltrate venture capital. SPVs can be raised much faster than a fund, are easy to set up, and best of all, they generate quick profits as fees and transfers are paid per transaction. Good for business, good for investors, and good for you future venture capitalists.

SPVs are viewed by venture capitalists as a forest league because they are not “real” funds, but their benefits are just as real. They represent a revolutionary ramp used by many aspiring and experienced venture capitalists to outperform their slow-moving counterparts, seize irresistible opportunities and, if all goes according to plan, make it to the NYSE. bill.

Y Combinator invented SAFE so founders can raise capital in small chunks and grow it quickly. It revolutionized fundraising. SPV is safe for venture capital.

What makes SPV so useful? Note: SPVs are cheap and easy to set up on a variety of platforms including AngelList, Canopy, Assure, Carta, Republic, Flow, and Stonex. (Full disclosure: Stonks & Flows parent company Dapper Labs received funding from my company Yes VC.)

A standard SPV on AngelList takes a few days and costs $8,000. Meanwhile, traditional fundraising, which involves creating, developing and adapting an LP, usually takes months and can run into thousands or even hundreds of thousands of dollars in legal fees.

You can sell an SPV to a much wider group of investors than a traditional fund that attracts non-institutional investors (Family Office, HNW, any accredited investor). They like SPV because it’s like investing directly in a company, except you work hard for them to find, build a relationship, and close a deal – they just get to choose.

Founders also love SPVs because they attract a group of investors who can be useful to them, SPVs can close quickly, and SPVs don’t mess up their cap tables. The founders often send you investors such as friends and family, small checks, potential advisors, and investors who don’t make it to the final round.

On your way to building your fund, SPVs are a great way to build a track record, expand your AUM and LP network, and carve out your niche in today’s hyper-competitive market. You can introduce SPVs to large owners, family offices and other investors without a blind pool.

You can also reduce the risk of your future general partnership by setting up an SPV first. Silicon Valley is full of horror stories about venture capital firms where therapists don’t talk to each other or are in the disastrous and costly process of firing a “key man.” Working with a partner by creating multiple SPVs and splitting carries will show you if you enjoy working together. With the foundation, general practitioners are practically locked in for life. Wedding date!

A joke offer? Super offer? Great offer? You know the deals are going to be huge? SPVs let you go after them. You don’t arm yourself with a predetermined stage, strategy, or nonsensical thesis that exists only to stalk a reluctant LP. You can develop a unique, time-tested story or dissertation backed by your SPV track record. Prolific fundraising angels are often surprised when LPs shrug their shoulders at angel investment reports. What they don’t understand is how important it is for LP to see someone who consistently raises pooled funds and successfully, securely and strategically deploys pooled capital. SPVs take you out of the sting and leave you in the united money manager category.

Once you have an SPV, you can move on to promoting a traditional fund from a more secure position. Add up all these SPVs and you already manage a significant amount of AUM. Some SPV investors will join your fund now because they are familiar with your investing style, your trades and your audience. A potential LP joining the group may call your SPV investors to check your creditworthiness. There are too many wins here, I’m losing count.

In addition, liquidity is needed to launch a venture fund. Many primary care physicians who are first paid for a year or more do not get paid for a year or more during their first fundraiser and then their first GP pledge, sometimes hundreds. Thousands or even millions of dollars must be paid . Some entry-level GPs have been forced to take out loans to pay off their own obligations to GPs. It’s also customary to invest in your own SPV, but you can start with a fairly small amount (tens of thousands of dollars or a few thousand dollars) and if you need to pay rent or pay for child care, you can get cash. Compensation from your investors when the SPV is closed.

However, the main advantage for beginners is speed. Raising the initial capital can take up to two years. It’s two years of your skeptical and already seen institutional record. If you are not self-financing, you may not be able to complete your first investment. SPVs work in reverse. You’re already investing because first you close the deal, and then investors – and founders – often help you get started with people who are already willing to invest in their business, so do it through an SPV.

Are there any disadvantages? There are always flaws.

One of the downsides of an SPV is that once you and the founder agree on the distribution and terms and close the deal, you need to quickly raise capital in the SPV so you don’t lose the deal. But it might be good! This forces LP to commit immediately.

Another potential downside is that some of your VCs will see your SPV as a hindrance because you are depriving them of a precious allocation. But with the backing and added value of a founder, you can justify your share of the pie.

Access to capital also becomes easier with every SPV because any investor who invested in your first trade (if it was a good one) is more likely to invest in your second and third trades as well. If you have constant access to great deals, a well-crafted Signal or Whatsapp message summarizing the features sent to your LP group can lead to an SPV oversubscription in minutes. I saw it happen! So many!

So walk before you run and reach your goal quickly.

Do not deposit funds first. Pick up another.

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