Portfolio Construction: Double Down on Winners
Reserve or hold back 50% or more of the fund for investing in existing portfolio companies during later rounds.
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Reserve or hold back 50% or more of the fund for investing in existing portfolio companies during later rounds.
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Focus on finding and backing great entrepreneurs with expertise or insight but otherwise embrace market or technical risk.
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The inverse of Consensus (or Veto), with Conviction, Does the Deal, an individual partner can authorize an investment in a company.
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A common way for new venture funds to be established is for people with a track record at one or more established funds to form a new one.
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Rather than a Spin-out from the established fund, where the existing fund is not involved, with a Carve-out, the established fund is an active participant in creating the new firm and perhaps retains some ownership.
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If any single partner is sufficiently uncomfortable, that person effectively has a veto over making the investment.
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In order to get started as a GP, another strategy is to find people willing to back a small fund of less than $10mil perhaps even as small as $1mil or so.
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If the check size is small relative to the total round size targeted, it can be easier to include the Follow On investor, particularly if the decision process is quick and does not require a lot of work on the part of the company.
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Being part of a relevant network of people can be a great source of potential deals. Founders referred by others in the network come with a higher level of trust, ability and may be better matched.
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First, an accelerator program establishes a reputation or track record of quality companies participating and then the managers raise a fund to invest in those companies.
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