The Twenty Minute VCRob Go: The Ultimate Guide to Raising a Venture Fund | E1029
EVERY SPOKEN WORD
140 min read · 28,099 words- 0:00 – 0:39
Biggest miss: Passing on DraftKings and misreading market size
- HSHarry Stebbings
What's your biggest miss?
- RGRob Go
My biggest miss was DraftKings. I was actually Jason Robins's L- uh, not LP. (laughs) Um, uh, teaching assistant in college. Um, I knew he was special. And he walked into our offices to pitch DraftKings, um, along with two other extraordinary co-founders. And we passed, not because of, like, regulation, but because we misunderstood the market size.
- HSHarry Stebbings
(instrumental music) Rob, it has been seven years since our last show, which shows that we've got incredible facial routines 'cause we don't look a day older. But thank you so much for joining me today.
- RGRob Go
(laughs) It's an honor to be here. Thanks for having me back, Harry.
- 0:39 – 2:47
How Rob entered venture and the contrarian bet to start NextView
- HSHarry Stebbings
Not at all. But before we do dive into the show, I love to start with some context. And so, tell me, how did you make that first foray into the world of venture and come to found NextView?
- RGRob Go
Uh, so, uh, this is gonna sound ridiculous. Uh, I got into venture because I got a cold call from a VC firm when I was in business school. Um, I was, uh, I, I distinctly remember, I was looking for... I was either gonna start a company or, um, or join an early stage startup. I was at a pre-seed stage startup interview, and I got an email from a partner at, uh, at Spark Capital because they were leading a team with a digital media background and, you know, at the time, everyone had a very narrow, um, definition of what they were, they were looking for. It was like, top business school, worked at eBay, Google, or Yahoo, and lived in the local market. And so I was in Boston. This fund was in Boston. So, went in for an interview. I was like, "Oh, this is kind of interesting. Let me pursue this." And then proceeded to get tortured for six months before I finally got my offer. But that's how I got into the business.
- HSHarry Stebbings
I love that. And then what was the founding of NextView? What was that, uh-huh, I can actually do this on my own with my own firm?
- RGRob Go
It was a lot of naivete. Um, I had, you know, started to learn the business at, at Spark over two years. Um, I saw the, um, the, the, the rise of C funds that were starting to happen, right? So Baseline, Harrison Metal, First Run Capital were starting to have these models where they're investing specifically in seed stage companies. That seemed like a n- that, that doesn't seem like a novel thing today, but it was a novel thing at the time. Um, most of the successful early stage funds were getting bigger and bigger, and you saw the writing on the wall for some of those firms. And I figured, you know, there's gonna be a seed stage specialized fund that's not based in the Bay Area, um, maybe here in the Boston area. So, you know, why not give it a shot? And so, at the same time, my partners David and Lee were, had pretty similar backgrounds to me. They were all thinking about the same thing, and we decided, you know, somebody's gonna make, take advantage of this opportunity. May as well be us.
- HSHarry Stebbings
I, I love that, and, uh, yeah, I totally agree with you in terms of seeing the writing on the wall for the large funds. Uh, I wanted... Before we dive in, you've now been in the industry for close to a decade, over a decade?
- RGRob Go
Mm-hmm.
- 2:47 – 4:34
What he wishes he knew: Venture as a young person’s game (and the backpack story)
- HSHarry Stebbings
I have to ask, what do you know now that you wish you'd known when you entered?
- RGRob Go
Venture is a young person's sport, and going in, we were very sensitive to the fact that we were inexperienced and we were young. Um, we have this funny joke actually at NextView where every time we raise a new fund, we get backpacks for each other, uh, like team backpacks. And the reason was, the first time we went into an LP pitch meeting, uh, which was out of town, Lee and I showed up with backpacks because that's what we used to travel. And our partner, David, was like, "Dude, you can't show up with backpacks. Like, people already think we're young, and now we're gonna, like, show up like school kids? Are you kidding me?" Uh, and so we always remembered that. And so after we closed our first fund, Lee, uh, you know, on his own, got a gift for the two of us, which were NextView logoed backpacks. And since then, that's been the tradition. Um, but I really believe venture is a young person's game. Like, the amount... We were talking about this before you started recording, right? Like, the amount of, like, energy and hustle that you're able to deploy as a young person is truly a competitive advantage. Like, there's a lot to learn from people who've been in this, the industry for a long time. But you can actually get that, uh, that, that kind of knowledge, uh, if you're resourceful. And what you can't really replicate is the, uh, the energy of youth.
- HSHarry Stebbings
A funny story. When I was raising my first fund, I was in a restaurant in the US and they started serving wine, and then they looked at me and said, "Do you have an ID?"
- RGRob Go
(laughs)
- HSHarry Stebbings
And I said, "I do, but it, it won't pass your test because I'm 20." And so, uh...
- RGRob Go
(laughs)
- HSHarry Stebbings
... and the, and the, and the endowment fund at the time was like, "Oh, my God, he's 20." (laughs)
- RGRob Go
(laughs) He's like, "What have we done?"
- HSHarry Stebbings
Um, but, but they proceeded to write the check, so all is well.
- RGRob Go
Yeah.
- HSHarry Stebbings
Um, I want to start though. We're gonna do, like, demystify, demystify a lot of the fundraising process today.
- RGRob Go
Yeah.
- 4:34 – 6:31
Choosing fund size via portfolio construction (NextView Fund V and check sizing)
- HSHarry Stebbings
I want to start on you. What's the fund size today and why did you decide that was the optimal size? Let's start there.
- RGRob Go
Yeah. So we're currently investing out of our fifth fund. Um, in fact, we have two. We have a C fund and we have a, uh, opportunity fund. The C fund is 135 million. The opportunity fund is 65 million. Um-
- HSHarry Stebbings
Okay. So you-
- RGRob Go
Yeah.
- HSHarry Stebbings
... wh- why those sizes?
- RGRob Go
Our portfolio construction has been pretty consistent since we started the firm. We make roughly 30 core investments per year. Um, we reserve roughly half the fund for follow-ons, and we have a sense for what the ideal average check size is for the stage that we invest in. And so today, we try to write checks between a million to $3 million into pre-seed and seed rounds. Uh, you kind of do that math and mul- multiply that out. That, that leads you to, uh, about 130, 100 to $40 million fund.
- HSHarry Stebbings
Okay, so you essentially have, like, $32 million checks, which takes you to 60 million initial, 60 million for, like, subsequent and follow-on financing, and then-
- RGRob Go
Yep.
- HSHarry Stebbings
... you know, investing fees. Got you totally. And then the opportunity fund. Talk to me about that being 65.
- RGRob Go
That was a little bit less precise. We have a sense of how many investments we think we ought to have in that fund, and that was actually with some guidance, uh, from our LPs in terms of the level of concentration that was appropriate. Um, and then we thought through, like, realistically what our allocation levels might be, um, for the things that were coming down the pike. And, you know, kind of did some fuzzy math and, and landed at a number. We didn't want something that was too big. And the, and the other, the other thing that we thought about was kind of the ratio between the C fund and the opportunity fund because we stapled the two in our last fundraise. So all of our LPs, um, were basically investing two to one from the C fund to the opportunity fund. And we thought that that was fair because...... um, you know, folks got to know us primarily as a seed fund and so most of their money is in the seed fund, but we think we have access to these great opportunities downstream and so, you know, having, you know, a, a third of their capital into, uh, uh, into those investments made sense to us.
- HSHarry Stebbings
I have a couple of things. And we're friends, so I can just kind of go-
- RGRob Go
Yeah.
- 6:31 – 8:14
Reserves vs. “picking on trajectory”: follow-on discipline and internal ranking
- HSHarry Stebbings
... off schedule. You know, you mentioned the reserves element. Now I, Rob, I hate reserves because I don't think I'm that good a picker on Trajectory. If I picked on Trajectory, I would've gone into a load of hyped companies, um, and bluntly, they would not have been good and sustainable investments. And so I actually prefer a no reserves model.
- RGRob Go
(laughs)
- HSHarry Stebbings
How do you think about, like, bluntly, picking sustainable winners not hyped companies just because they're faster to grow with Trajectory?
- RGRob Go
I have a couple answers to this. Uh, one, I think we have a similar perspective because we think that our most important investment is actually the first investment. That's when we need to buy most of our ownership. And even those... And when I think about reserves, you know, uh, we- we're doing pre-seed and seed and, and in this market, right, sometimes we're make, taking a couple of bites at the apple. And so we want to make sure that we can support founders that we invest in really early with some additional capital to get them to Series A. So there's, there's a piece of it that's that. Um, but for the most part, we're trying to buy our, our ownership up front. Like, this isn't really a strategy of, like, let's, let's sprinkle some dollars in the beginning and, like, pile in at the end. We have a process internally in handling follow-on financings. Um, we basically, uh, do a, a ranking of the portfolio, um, every quarter from a perspective of where we want to deploy our follow-on capital. And we do that because we want to make the decision apart from a financing, um, opportunity. Right? Because what ends up happening is when some fancy firm comes in, wants to lead a Series B, you're, you convince yourself that this is the best opportunity in the world, but then if you look back and say, like, "Well, a quarter ago, you know, this was not necessarily a company that we were, we were as bullish on," like, you gotta make some really h- you know, convincing argument why that makes sense. So that's, that's one of the mechanisms we have to be able to do that.
- 8:14 – 9:55
Opportunity fund mechanics: stage separation, LP perception, and why not just raise bigger
- HSHarry Stebbings
And how do you determine between reserves versus opportunity fund in terms of where the dollars come from?
- RGRob Go
Yeah. It's a little bit of a, a stage mismatch. So what I would say is actually, the seed fund goes pretty heavy in the seed, usually does our pro rata or a little bit less than our pro rata, than our Series A, and then kind of stops from there. And then the opportunity fund comes in at the B or C stage. So there's almost this, like, period where NextView is actually investing a little bit less than our capacity, um, just to create a little bit of separation between the two funds. So, you know, it's a little bit... It's not truly a barbell, but it's a little bit more like a barbell, um, than, than if we raised one fund and just, like, followed on at every stage.
- HSHarry Stebbings
I'm gonna be a bit of a dick. I speak to a lot of LPs-
- RGRob Go
Yeah.
- HSHarry Stebbings
... and they're always like, "Oh, we hate opportunity funds." Did they hate opportunity funds with you two?
- RGRob Go
You know, when we raised, opportunity funds looked pretty darn good. Um, uh, there was this, like, brief moment in time where the numbers were quite strong. I mean, this was really t- uh, 2002, 2000, 2001 really, when we raised it, um, so there was a lot less pushback. Um, I think the LPs also liked the idea that, you know, most of their dollars were going into the seed fund, not the opportunity fund.
- HSHarry Stebbings
Sure.
- RGRob Go
I think there are other firms where the balance was different, right? It was like two to one the other way. Um, LPs didn't love that. Um, I think the, the third is, like, there's an alternative which is we could just raise a bigger fund overall. Um, but I think everybody kind of loses in that case, right? Because, you know, it's harder to deploy that much money, the fees effectively are higher if you don't do... Because our, our opportunity fund has somewhat discounted fees. Um, and so I see this as kind of a win-win, uh, for everybody in, uh, uh, who's doing this.
- 9:55 – 10:58
Fund I flashback: $21M fund, similar construction, and how seed economics changed
- HSHarry Stebbings
I totally agree with you in terms of the separation of funds and the benefits that accrue there as a result. If we lean back to Fund 1, what was that size?
- RGRob Go
Fund 1 was a $21 million fund.
- HSHarry Stebbings
(laughs)
- RGRob Go
Yes.
- HSHarry Stebbings
And that was a very different portfo-
- RGRob Go
With three partners.
- HSHarry Stebbings
Was that a different portfolio construction, uh, or has times changed that much?
- RGRob Go
You know, weirdly it was not that different. Right?
- HSHarry Stebbings
Hm.
- RGRob Go
So still roughly 30 companies in the portfolio. Um, initial check sizes were lower, but, you know, seed rounds at that time, like $1 million was a pretty big seed round, right?
- HSHarry Stebbings
Mm-hmm.
- RGRob Go
And so we were writing 3 to 400K checks and doing roughly 30 investments per fund and reserving some capital for follow-ons.
- HSHarry Stebbings
Oh.
- RGRob Go
So it kind of was the same.
- HSHarry Stebbings
I miss those days, Rob. Uh-
- RGRob Go
Weren't those good?
- HSHarry Stebbings
And you c- and, and you could buy, like, 10% of a company in some cases for like 500K.
- RGRob Go
I mean, ownership relative to fund size was quite nice.
- HSHarry Stebbings
Oh my gosh.
- RGRob Go
I don't know if you would own 10% of the company, but you could have, like, pretty meaningful ownership, and out of a $21 billion fund, you didn't need that much to, uh, to move the needle.
- HSHarry Stebbings
Oh my gosh. So we're gonna go into the fundraising process today-
- RGRob Go
Okay.
- 10:58 – 14:05
Fundraising basics: docs, lawyers, and equal partnership structure
- HSHarry Stebbings
... because there's, like, a lot of unknowns that I think need to be addressed. If we think about, like, chronologically speaking, we decide on this fund size that we just touched on. Now we need to do some docs. What docs did you prep for the raise and how would you advise on preparation f- in terms of documents?
- RGRob Go
So when you say docs, I think... Uh, there's both, like, the actual legal documentation around the fund, the LPA and so forth. I, I think I, you put that aside. You kind of wait until you're at the end of the process. But I think step one is pick a really good law firm. Like, we've worked with Gunderson since the beginning of, of the life of NextView and we actually chose them because they had had experience working with others' funds that were similar to us, um, and gotten a couple recommendations. So get a good lawyer and they will help you set up the, uh, basically the agreements with your partners, which I think is really, really important. Like, this is sort of nothing to do with the LPs, this has everything to do with, like, how you run the fund and, and how you, how the management company operates. But then going to the actual fundraising documents, um, we basically had a deck and a few spreadsheets that had our track record and, um, I think we had a, a bunch of slides around, like, case studies and that sort of thing. But for the most part, we weren't, like... We didn't have that much documentation. It was mostly focused around our deck.
- HSHarry Stebbings
What do you advise founders getting out today in terms of those materials that they have going up to raise from those first LPs?
- RGRob Go
What I have found is most LPs care about deck, track record, and then it's- it's really deck and track record are the- are the main two things they care about. Everything else is just fodder for them to use as ammunition to sell into their, uh, investment committees. And so, you know, you- you think about, like, what's- what are the assets that you have at your disposal, right? Like, if you have a great media company that is powering the fund, you'd put tons of stuff about the media company, right, and tons of stats about that. Um, if you have other assets at your disposal, put other things there that- that matter, uh, uh, for that purpose. But, like, really, I think most LPs, they spend, like, 90% of the time on the deck and the track record, and that's all there is.
- HSHarry Stebbings
I totally agree with you there. I- I have to ask, you mentioned about kind of the agreement between your partners. It's a big sticking point for a lot of LPs. Do you have an equal partnership at Netisview?
- RGRob Go
Uh, we do have an equal partnership.
- HSHarry Stebbings
And- and tell me, is that across carry and salary? 'Cause sometimes you see differences there.
- RGRob Go
Yeah, uh, that is carries and salary and ownership and governance.
- HSHarry Stebbings
How important is that, having that equal split?
- RGRob Go
For us, it has been really, really valuable and important. I don't think it's the right path for everybody. Um, but, you know, we- the- the- especially the three founders but all the partners now, we're very aligned in our, like, life goals and our career. And so, it was kind of easy to be able to say, like, "Hey, we're in this together long term." W- we felt like if it wasn't equal, there would be too much- too much of an incentive to renegotiate depending on, like, how things are going in the fund. And- and thankfully, my partners kind of have this long-term view around the- the downfalls of not having an equal partnership and- and were willing to- to structure it this way. And, you know, I was very happy to do that.
- 14:05 – 18:21
Anchor vs. ‘bottoms-up’ first close: strategy, failed anchor attempt, and concentration rules
- HSHarry Stebbings
No, I think it's really important. So, now we've got this kind of doc preparation stage. We've got the deck. We've got the tr- record. They look fantastic. Now it's time to go out and raise. Rob, do we want to get an anchor first and then get more friendlies around them? Or do we want friendlies and then anchor? What's that strategy?
- RGRob Go
I think both are viable strategies. We tried the first and ended up doing the second. Um, so, typically, an anchor is, you know, usually an institution, usually somebody who has some strong relationship with you, um, who is willing to be the first yes, write a meaningful check, um, and you can build y- the rest of the- the fund around them. Um, that usually requires a pretty long process, usually, to get the anchor over the finish line. Um, but then because that process was so robust, other- other institutions and folks who want to be a part of this, it makes it very easy for them to say yes. The other approach, which is what we ended up doing, was sort of a bottom sub strategy, right? It's a little bit more of a, like, you know, uh, lean startup of venture funds. You basically find the people who are willing to say yes and just trust you. Um, you try to tally up as much as possible, preferably enough to do a minimum viable first close, close that capital, get into business, and allow yourself time to be able to cultivate the- the slower-moving institutional LPs to come alongside you, hopefully by the end of the first round. So, we ended up taking the second strategy.
- HSHarry Stebbings
Why did the first not work for you?
- RGRob Go
Because LP said no. (laughs)
- HSHarry Stebbings
(laughs) Why did they say no?
- RGRob Go
We- we had a... So, we had a couple of LPs that showed very positive signs early on. And, um, and- and, you know, these LPs then started collaborating with each other and said, "Oh, maybe we're gonna anchor this fund." And we went down the process with them. Um, and I don't exactly remember what happened. At some point, they just got some pushback and started to get cold feet, and we saw the, you know, the- the Jenga tower start to crumble. Um, it was really... I mean, it was easy to say no to us, right? We were new. We didn't have that much of a track record. It was a time when folks said, "Well, if you weren't in Silicon Valley, like, why bother doing venture?" Venture returns generally were really, really bad. So, like, it was easy to say no, right? So, you know, they- they just, like, got cold feet, and we were back to the drawing board.
- HSHarry Stebbings
I'm super opinionated on this one. I think unless you have, like, an anchor who's, like, you know, giving you money forcefully, go to your friends, use them for social validity, go for the big names, and with every friend, ask for three subsequent LP intros that they can make and put as a reference for themselves. Like, "Hey, I'm investing in Rob's fund. I love Rob. Meet X, Y, and Zed." Then you build the flywheel. And actually, as you said, when you get to minimum viable, like, first close, I find all LPs want is to know that you're actually in business. There's no risk of it not happening.
- RGRob Go
Yeah, I think that... I mean, that's the strategy I would recommend for most folks that are raising seed or early-stage funds. I think there's certain funds where it's just not practical, right? If you're... And I have a friend who is raising a growth fund, and, like, it's just tough to do a minimum viable close. Or, you know, you- you kind of do your first close, but you say, "Hey, you know, we might end up doing, you know, a slightly different strategy, because what if we only close at, like, half or a third of our ultimate target," right? Um, I think in those type of strategies, you kind of need to have a meaningful anchor or some really big dollars behind you to be able to feel good about closing the capital.
- HSHarry Stebbings
So, when you think about that anchor, do you... One, do you have to have an anchor? Two, d- do... Like, can they be 50% of your fund? What do you think about concentration of capital to the anchor? And are there different qualities of anchor?
- RGRob Go
Ideally, I actually don't mind concentration that much. Um, especially for a small fund, you're gonna have concentration one way or the other, right? And so, I'm like, "Don't overthink it."
- HSHarry Stebbings
What's the concentration? Is that 25%? Is that 50%? That 10?
- RGRob Go
Uh, you know, some- some funds don't want an, uh, LP to be more than 10% or 15%. Like, we've had situations where we've had more than 20% of the fund in- with- with one LP. Um, I think 50% is kind of extreme. I think it's probably unusual that an LP would be willing to do that without some special controls or economics. That I would recommend probably steering away from, for the most part. But, you know, if you have an LP that's 20% of your fund, 25% of the fund, like, that's not ideal. But hopefully, by the time you get to your next fund, you can start to dilute their influence.
- 18:21 – 25:56
Selecting LPs and avoiding bad concessions: influence, champions, and saying no to special terms
- HSHarry Stebbings
Okay, so we- we're okay with concentration, probably do need one. Are there different qualities in terms of the types? We've got corporates, family offices, endowments, foundations. Is there a snootiness and exclusivity of anchor of LP?
- RGRob Go
I think there are some LPs that are more influential than others. Um, so if you have a really fancy endowment or foundation, that tends to be a stronger signal for other LPs that, uh, that- that want to come alongside them and essentially outsource the- the due diligence, or help them feel better that- that, you know, they're not making a stupid mistake. But frankly, I actually don't care that much. Um, I think that you get- you get the partners that you like. Um, you know, the different profiles, you know, there- there was a time when folks used to say that like endowments and foundations are the most robust long-term partners that exist on the planet. I- it is just not true. I've heard so many cases where markets turn, things change, and the first ones to leave are the endowments. So, it's hard to overthink it. I- I actually think it's, what's more important is the individual who's there. You want somebody who is empowered, not at the very end of their career, because there's- there's a risk that they're gonna leave and then you're gonna be adopted by somebody else. Um, and somebody who's really committed to whatever it is you're doing, like whatever your strategy is, whatever segment of the market you're- that you're in. And as long as that person is still around when you raise your next fund, I think you have a pretty good chance to- to get that firm back over the finish line. And it doesn't really matter what kind of institution they're in, as long as you have that kind of champion wi- internally.
- HSHarry Stebbings
So, one, I totally agree with you, like multi-thread super early. It is a nightmare when you have a champion leave and then you're kind of the orphan child.
- RGRob Go
Mm-hmm.
- HSHarry Stebbings
Two, totally agree with you in terms of like not being as stable as you think with some of the biggest institutions. I would say it's worth really being snooty though for subsequent LP acquisition. I find when you get the-
- RGRob Go
Mm-hmm.
- HSHarry Stebbings
... Notre Dame, Yale, Harvard, MIT, Stanford, instantly it just gives so much credibility to other LPs. For subsequent LP acquisition-
- RGRob Go
Yeah.
- HSHarry Stebbings
... it makes such a difference.
- RGRob Go
I think so. But, you know, there's also extra risk if they drop you, things that really, really hurt. So you better not lose them.
- HSHarry Stebbings
That's totally true. But, you know, at least you have three funds. (laughs)
- RGRob Go
Yeah. We- we had a- we... I'm not gonna name names. We had a pretty, um, influential institution drop us, uh, uh, in our third fund. And they did it the ninth hour and there was... And basically the reason was that there was, you know, they had a new CIO, um, most of the private equity team turned over, and they just didn't give us the attention needed to make that concrete decision early on. And like, that was like a pretty devastating event for us. So, it goes both ways. Luckily, all of our existing LPs, um, had the wherewithal to stick with us, e- everybody else, um, some of which actually increased their- their allocation of the fund and we were able to get through it. But like, I don't know, that- that experience sticks pretty... I- it is an important one in my mind because it made me realize that like influence kind of goes both ways potentially.
- HSHarry Stebbings
Yeah. That's pretty bad. How did you respond?
- RGRob Go
Mm-hmm. Well, this was before our first close for that fund. And, you know, we- we basically went back to all of our existing LPs who had committed and said, "Hey, here's what happened." And, you know, the- the rationale I actually think made sense because that institution was so large and our fund was so small that it really didn't make that much sense for them to be in funds like us unless they had a dedicated strategy. And because they had turned over their leadership within the private equity and- and the CIO as well, like they had just shifted the strategies. Thankfully, one of our other LPs that was gonna be sort of a co-anchor in this fund, um, was super rock steady and, uh, and I think that gave o- other LPs a lot of confidence that they could move forward. Um, so shout out to- to Michael Kim at Sundana for, uh, for helping us navigate that and being a really great partner.
- HSHarry Stebbings
Yeah, Michael was the first ever LP meeting I ever had. I think he thought we were complete-
- RGRob Go
Is that right?
- HSHarry Stebbings
Yeah. I think he thought we were complete reprobates and proceeded not to give us money. Um, but, you know-
- RGRob Go
(laughs)
- HSHarry Stebbings
... still love Michael. What a great guy. Um, I- I- I-
- RGRob Go
Yeah.
- HSHarry Stebbings
... I- I do want to ask, in terms of like getting them over the line, that anchor, a lot of times the anchor says... Well, I've- I've seen them when I was very young, they're like, "Hey, we'll do it, but we'd like to buy part of the GP or we'd like part of the carry, discount on fees." How do you think about concessions to get the anchor over the line?
- RGRob Go
Um, I wouldn't do it. I think it's a sign of strength not to take that deal. It's not very typical in venture, I would say. Um, I- I've heard it's more common in private equity or hedge funds. Um, and so if you're talking to an LP that's very used to anchoring hedge funds, like they're more likely to ask for this. But I think for the most part, it is to your benefit to show some strength and say no to that. Um, and, you know, especially with our first fund, I remember every other LP asked, "Well, do any of the early folks in the first close have special economic special governance?" And everyone is relieved when you say no. And so you think about like the long game here, like you really don't want to get stuck with, uh, with somebody who has, you know, extra power within your organization unless you really believe they're a long-term partner. But I think that's very rarely the case.
- HSHarry Stebbings
I think you're absolutely right. It sets-
- RGRob Go
We actually have an interesting... Go ahead.
- HSHarry Stebbings
It- it- it sets a dangerous precedent where, like you, I had it where they were like, "Does anyone..." and the minute you say yes, it's just uncomfortable every time.
- RGRob Go
Yeah. And I think there's a question of like, what did you do this for, right? Most people who start funds, uh, many people came from funds, uh, or, you know, could be doing other things. Like the reason you did this probably is to have independence and control and do what you want to do. And so once you have somebody who has, you know, additional governance, you kind of start to- to cede some of that. Um, so in our... We actually had a situation, uh, where shortly after our busted, um, anchor, you know, situation, uh, we had a couple billionaires whose name I won't share, um, who basically said, "You know, we kind of like what you're doing. We were thinking about starting a fund too. Why don't we just like merge and we'll create our own firm, we'll raise like a couple hundred million bucks for you guys, you know, and we'll just do it together?"... and we had a couple of conversations about this, and it was very enticing, right? It was like get into business, um, these were very high-profile, you know, entrepreneurs and, and investors. Um, you know, this was a time when like a couple of hundred million dollar early stage seed fund was like unheard of. We were like, "Man, we can like get into the game in a big way." Um, and I remember my partner, David, was very decisive about this. He was like, "You know, if you guys wanna do this, you should do it. I'm not gonna be part of it." Uh, "Because the reason I left my job to start a firm was because I wanted to do things my way, uh, uh, with you guys, and, uh, that matters a lot to me. And if we take this offer, we're just gonna be employees. Like d- don't listen to anything they say or what they promise. We are gonna be employees. I do not want that." And that was a very decisive, uh, conversation and, and he really convinced us that we need to go o- on our, our own path.
- HSHarry Stebbings
It is hard. When you get, "Hey, you never have to fundraise. Super influential people coming in for you," you're like, "Ah, that sounds nice." Yeah. I-
- RGRob Go
Yeah.
- 25:56 – 32:31
LP process execution: sourcing intros, when to send the deck, qualifying LPs, and data-room gating
- HSHarry Stebbings
... I, I do feel you. Okay, fair enough. Well, listen, totally the right decision. Uh, when we reflect though on like the, the meeting processes itself, for Fund 1, how many meetings did you have?
- RGRob Go
We had... Must have been hundreds. We didn't... We, we like stopped counting at some point.
- HSHarry Stebbings
Okay. So you had hundreds. How did you get in touch with them? What was that entry point for that relationship?
- RGRob Go
Thankfully we had been in venture for a few years, um, and so we had relationships with GPs at our firms and other firms who were willing to, to make introductions to us. Um, what I found actually very useful though was not necessarily our closest relationships as much as other funds that were sort of like us that had raised recently, and it was just amazing, Harry, how generous people were in sharing, you know, their insights in the process, their lead list, you know, giving us background intel on everybody who's, you know, who they spoke to. Um, I remember, you know, one, one person always sticks in my mind. There were, there were a few, but Bryce Roberts who was doing OATV at the time, um, he... Like I barely really knew him, um, but, I don't know, I guess we just had good chemistry. And I remember him sharing me his entire spreadsheet and talking me through every single LP and saying like, "Here's how they think." A- and I didn't understand like half the words he was saying and he just like was so gracious and was able to explain to me like, you know, what the situation was, how we should be thinking about it in our process. And, you know, I, I just like can't thank him enough for that generosity early on.
- HSHarry Stebbings
So I've made many LP intros for Bryce. It's funny you said that.
- RGRob Go
Mm-hmm.
- HSHarry Stebbings
And the reason I do, and I do actively for other early stage managers, is 'cause when you find a great manager, they're gonna raise with or without your help.
- RGRob Go
Yeah.
- HSHarry Stebbings
You get brownie points for helping them, and then you get brownie points from the LP for providing great leads. It's like a net, net win-win to do it.
- RGRob Go
Mm-hmm.
- HSHarry Stebbings
Don't you think?
- RGRob Go
Yeah. And I didn't realize that at the time, right? I would... At, at the time, I thought that folks would be very protective about LP relationships. You don't realize that, you know, a lot of the market has this win-win perception. I gotta tell you though some firms don't. I think it's a little bit of a scarcity mindset. And I would argue that, um, this is a little bit of the function of the time. Like part of why the Boston venture market at the time was l- was not thriving the way the West Coast market was, um, is there's a little bit of a scarcity mindset here, a little bit more of a protective attitude towards everything. Um, which frankly was part of why we started... Wanted to start a fund, right? We wanted to buck that trend, and I actually think that many of the funds that exist today, um, don't behave that way. Um, but, you know, there are certain ecosystems where I think that that is definitely the case.
- HSHarry Stebbings
No. I, I totally agree with you. Uh, I think we're getting there more and more. When we think about those LP intros there that we have, did you send them the deck, the track record beforehand? There's often a question of whether to send before or after.
- RGRob Go
Yeah. So you could go either way. I actually don't think it's a bad thing to send the deck. It's like, you know, people want the information, just give it to them. Um, uh, sometimes we'll send like a pretty detailed blurb so that there is some enticing information but we don't have everything. I actually don't mind that, because I think a, a part of your job is to qualify and to try to manage your time well, um, and so having an, an obvious next step that is out there is kinda helpful for that qualification process. But, I don't know. For the most part, I think sending a deck is not the worst thing.
- HSHarry Stebbings
I, I agree with you. I, I, I prefer the more detailed blurb. I find that people find a reason to say no in the deck quite often ahead of time. But you mentioned qualification there.
- RGRob Go
Mm-hmm.
- HSHarry Stebbings
I do wanna touch on that, 'cause I think there's questions that managers can ask to qualify LPs early in the call or the meeting. What questions-
- RGRob Go
Mm-hmm.
- HSHarry Stebbings
... do you think managers can and should ask to better do LP qualification?
- RGRob Go
This is something that I didn't realize when we started the first fund. I think that the number one factor in, in whether an LP says yes or no is just timing, right? Are they expanding their program? Are they looking for whatever box or category they put you in? Um, and do they have the bandwidth to be able to do it within the timeframe they're trying to raise the fund? Like those are the main factors, and so you wanna try to figure out like what the answer is to those, to those, uh, those questions. Not... The alternative is, if you have just like extraordinary performance and extraordinary track record, like LPs always want that. So, but, but if you have that, it... You don't need to listen to me about fundraising advice if, if that's kinda the, the, the place you're at. Um, so, you know, in terms of qualifying, I think you try to get a sense for, you know... What... LPs usually will share like what percentage of their portfolio is private equity or venture. You wanna get a sense for like is that growing or shrinking, right, and what's driving that growth. Um, you wanna get a sense of like...... has this LP invested in something that looks like you and what is their general strategy around that category of, of, of product, right? Because, you know, within Venture, presumably if you're raising a first fund, you, you fit into some small bucket, right? So when we started, it was, like, institutional seed funds not in the Bay Area, right? A few years ago, it'd be crypto, right? Most LPs hopefully have some strategy of, like, "We want to have, like, X number of managers that look like you. We've invested in two or three of them and so we have another, like, you know, four or five to go," right? Like, whatever the numbers are. Um, so trying to get that, that feel, I think, is really, really valuable. Um, and whatever questions it takes to, to answer that, I think, is, is what you're looking for.
- HSHarry Stebbings
I always ask about geography. I find if you're the first in a new geography, it's probably very unlikely. I always ask, like, on check size. Like you said there, about the ones that are massive checks. Like, if they write 25 million dollar checks and you're raising a 30, 40 million fund, you're pretty much qualified out straight away. I do check size, geography, existing portfolio for them, and then I always like to say, "I think you can be quite bold in your fundraise." And so I would say, like, "Listen, I'm really optimizing for long-term partnerships and I think trust is built over time. Can you talk to me about how you think about how you support your portfolio in the long term?" And then if they're like-
- RGRob Go
Mm-hmm. Yeah.
- HSHarry Stebbings
... "Actually, we take a very case-by-case basis," you're like, "Uh, okay."
- RGRob Go
(laughs) The, the challenge though is a lot of the, the answers, right? Like, LPs want to maximize and maintain optionality as much as possible, right? And so, you know, uh, some, some, uh, LPs will be very, very straightforward and direct and, and specific, and most will be, you know, kind of vague. And, you know, I think that's okay. It's hard to know.
- 32:31 – 1:07:40
Momentum and closure: follow-up persistence, creating urgency, best/worst meetings, and fundraising lessons
- HSHarry Stebbings
What was the best-ever LP meeting you had?
- RGRob Go
I'll tell you the LP meetings I most enjoy are ones that focus a lot on the human beings and the kind of nature of the team dynamic, the why behind what we do, um, uh, you know, the touchy-feely meetings. There is a class of LPs, and I'm trying to figure out where... I think that there's a lot of roots in the way that, like, the Yale Management, uh, Company has trained, um, investors. Like, I, I think a lot of folks who, who have this approach c- um, have a heritage at Yale. So I really enjoy those meetings. Another meeting I remember was, uh, with Horsley Bridge. Um, they're not LPs in our fund, but I remember actually a follow-up where we were talking about portfolio construction and one of the, uh, one of the folks there said, "You know, the best portfolio construction in the world is to invest in one company and put all your money into the first round and be right." And every derivative from that basically is allowing for uncertainty and risk. Uh, and I always kind of remembered that. I really en- I, I kind of enjoyed their, like, probing, taking ideas to an extreme just to stretch your thinking, because I felt like I learned something from that. And, you know, obviously that's not what anybody does, but I kind of appreciated that point of view and it, it changed the way that, um, I sometimes think about portfolio construction myself.
- HSHarry Stebbings
What was the worst LP meeting you've had?
- RGRob Go
The worst LP meetings are just when it's clear the person doesn't want to be there. Um, we actually very rarely have those meetings now. And for the most part it's because we don't, like, fight that hard to get a meeting. Like, in the beginning, we were... I was like, "Oh, you know, I just need to get in the room and if we can get in the room, we can convince somebody that they want us." I now have the opinion that, like, if they... if somebody doesn't want you, like, they don't want you. Like, and I'm not that charming, I'm not that great, you know, e- I'm not that great of a salesperson. So, like, it does me no good to walk in to somebody who's already, like, leaning way back. Like, life's too short, there's other opportunities out there, and so, um, I just don't worry too much about that. So, I would almost say, like, you want to scrape and fight really hard to get great introductions, but if somebody doesn't want to take a meeting, like, there's no, there's not that much value in, like, forcing it. That's my point of view, at least.
- HSHarry Stebbings
If we think about that post-meeting process though, we have that meeting, we have that call. What's the right subsequent follow-up? What do we send them? When do we send it? What do you advise there?
- RGRob Go
Yeah. So, um, Mark Suster had a post years ago, and one of the takeaways was, uh, to paraphrase, like, "Always leave something more." Right? Like, always leave something out so that there's some reason to have a follow-up, right? So, that, that's sort of why a blurb is kind of nice, because then it a- it gives you the opportunity to follow up with a deck, right? Um, sometimes... So i- i- with one of our fundraises, we had a data room. For the first time, we actually had a data room. And we were so liberal about saying, like, "Well, here's the data room. Have a look." Um, we have since changed that, where we do have a data room, but the data room is a, is a preliminary data room and it is intentionally incomplete. And the reason it's intentionally incomplete is I want to see an LP... I- if we offer the data room, I want to know they looked at it. Which, which you can. Like, a lot of times there's tracking for these things. But then, if they actually, like, prosecuted it, it'll be obvious that there's some other stuff that they would want to see. And so we have, like, a subsequent data room that we offer for folks who actually dig in and, and care to, care to look at it. So I like having these kind of gates, uh, that are out there to try to get, um... just, just to assess whether or not LPs are serious and, you know, to, to... It's sort of like a video game, right? Like, let them go on quests and, uh, you know, pass a level and move on to the next one.
- HSHarry Stebbings
I totally agree with you. So let's talk about the next level. You send them the deck, you send them the follow-up, something, the data room. They don't respond. What do you do then?
- RGRob Go
I have a basic belief that it never hurts to ask twice, but I never ask three times. Right? So if there's an email that doesn't get responded to, I don't feel bad about asking again. After two... after I'm, I'm ignored twice, that's okay. I just move on. That doesn't necessarily mean they're dead, by the way. It's just that I'm not going out of my way to proactively seek them out.... but, you know, fundraising processes are long. You never know, right? You might see them at a conference in, you know, three, three months from now, and they'll be like, "Oh, yeah, you know, uh, the times have changed. Like, let's, let's have a follow-up." And, like, that's fine. I, I, I... They're not dead to me. They're just... I'm just not gonna, to proactively reach out anymore. So that's my general rule.
- HSHarry Stebbings
I remember, there was one with my first fund, and it was... I, I... Fuck it. Uh, an old LP is in mind. Allianz-
- RGRob Go
(laughs)
- HSHarry Stebbings
... um-
- RGRob Go
Okay.
- HSHarry Stebbings
... the insurance provider, and they didn't respond after a great first meeting. Every single Monday for 50 weeks, I re-emailed them.
- RGRob Go
(laughs)
- HSHarry Stebbings
50 weeks. Which shows that they, they took a year to raise the fucking fund. Um, and then on the 51st week, they responded, "Sorry, been slammed. Love to engage."
- RGRob Go
(laughs)
- HSHarry Stebbings
And you're like, "Really?" Um-
- RGRob Go
And what'd you do with that?
- HSHarry Stebbings
And so we followed up, and we're like, "We would love to engage too. Yes, please." You know, we only sent 50 fucking emails to get this one.
- RGRob Go
Mm-hmm.
- HSHarry Stebbings
Um, but so I totally agree with you. But I think, yeah, there is a certain time when you probably should stop. (laughs) Um-
- RGRob Go
Well, well, well, so it, it seems like you've had maybe a different experience where... Because if you've sent 50 emails, that means for somebody else who sent 10 emails, and it did work. So do, do you actually think that the two email rule is not correct?
- HSHarry Stebbings
Oh, yeah. 100%. I, I know I've said it.
- RGRob Go
Okay.
- HSHarry Stebbings
Like, I just think, like, the cost of it, that... You know, you're technically right, but the cost of it is so little. Like, just checking in, one of our portfolio companies just raised a huge up round by Sequoia.
- RGRob Go
Mm-hmm.
- HSHarry Stebbings
It's very low. Like-
- RGRob Go
Yeah, yeah.
- HSHarry Stebbings
... actually the cost is low and the benefit is high, so fuck it, keep going. And I'm always more and more humorous with everyone.
- RGRob Go
Mm-hmm.
Episode duration: 1:07:40
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Transcript of episode DRVPLOcOMwI
