There are now almost 430 European VCs which can make it tricky and time consuming to differentiate the best from the rest. Inspired by recent articles which address innovation to the venture capital business model, such as Glilot Capital Partners’ VC 3.0 (including Venture Capital 2.0) and Reid Hoffman’s Sweat Equity Ventures, I wanted to share some tips with first-time entrepreneurs and emerging investors on how to evaluate a venture capital firm.
I am fortunate to have experienced both sides of the table.
My first role at J.P. Morgan in 2009 was to advise US pension plans on how to manage their retiree money — this included evaluating venture capital and private equity managers across US and Europe. The newly formed team¹ included professionals (varying in gender, ethnicity, education, and age) with backgrounds in asset management, sales and trading, treasury and cash management, and actuarial science who each had over a decade of experience working closely with pension plans and other institutional Limited Partners (“LPs”) across both continents. In the recent 5 years, I was also involved in the fundraise of European venture and early growth firms, Bessemer-backed Columbia Lake Partners fund I and Dawn fund III.
While it may seem easy and effortless given there are new and bigger funds announced daily, believe me when I say that raising a venture fund is an extremely humbling exercise. Many investors come away with a heightened level of empathy for entrepreneurs raising capital.
In many ways, creating and managing a venture fund is quite similar to how you would think about building a startup or managing a corporate.
Below is an open framework which takes into account 4 key areas:
- Fund Size
- Fund Strategy
- Experience
- Competition
Let’s examine each of these considerations in more detail.