ANNUAL EQUITY SUMMIT 2022 RECAP
The Path from Fund I to Fund II
With Henri Pierre-Jacques, Katie Stanton, Nisha Dua, and Shauntel Garvey
With Henri Pierre-Jacques, Katie Stanton, Nisha Dua, and Shauntel Garvey
Henri Pierre-Jacques (managing partner, Harlem Capital), Nisha Dua (co-founder and managing director, BBG Ventures), and Shauntel Garvey (co-founder and general partner, Reach Capital) have all navigated launching their second funds, and shared their learnings between Fund I and Fund II with Katie Stanton, founder and general partner of Moxxie Ventures.
First funds are really about proof of concept, Shauntel said. “You’re just trying to find out: Can I actually have deal flow? Can I get into these deals?” And your limited partner (LP) base is mostly sourced from your personal network, and often made up of high-net-worth individuals and family offices.
But the transition to second funds means thinking more about portfolio construction, she said — not just getting in deals, but leading rounds. Second funds are also when you will think more about diversifying your LP base to include institutional investors.
The best time to raise your next fund is “before you need the money,” Henri said. He added that they run a three-year pacing cycle for their funds and try to raise 9-12 months before a fund ends.
Nisha said her pacing was roughly the same. “And I think there’s some merit to the ‘always be raising’ sentiment,” she said. Developing relationships takes time and consistency, and you may build a relationship with an LP for three or four years before they invest.
To move toward more inclusivity and equity in tech and VC, “transparency is key,” Nisha said. “Carta has done a great job of publishing data around, for example, gender on cap tables. But I think funds should be doing this too.”
It’s not until you have data that you can know where you have problems, she said. “At the end of the first couple of years of our first fund, we realized we had half tall white women— my partner Susan is a tall, white woman—and half short Asian women, and I’m short and Indian,” she said. “And of course, I’m being a little hyperbolic, but wherever you go, you’ll find people like yourself. And I think you have to look at your own data and you have to decide to be proactive.”
You have to look at your own data and you have to decide to be proactive.
In its early days, BBG had the primary focus of investing in female founders, but over the years, the thesis has evolved and expanded. “In our most recent fund, 70% of our companies had a founder of color on the team,” Nisha said. “We invest in female and diverse founders who are focused on building for the polycultural future of America.”
Nisha said she’d love to see more venture funds make their data public, and for LPs to do so as well. “I think that’s something that’s been a little slower for the LP world,” she said.
Herni added that in addition to investing in founders of color, Harlem Capital aims to drive impact through its internship program. The firm has had 82 interns since launching, 32 of whom now work in venture capital, across firms like Lerer Hippeau and Ulu. “We only do 10 to 15 deals a year out of the 8,000 VC deals that get done a year. Those 10 to 15 alone are not going to change the face of entrepreneurship, right? But we can have 30 or 40 or 200 interns who become VCs and they can advocate for five to 10 deals at their companies. Now you start to get to thousands of diverse founders.”
There’s no one answer for how to construct your portfolio, the panel agreed. “You have to think about what kind of fund you want to be, philosophically,” Shauntel said. “There’s the spray-and-pray model, where you do a bunch of deals and are very hands-off. Or do you want to be a hands-on investor? Do you want to take on board roles?”
Henri said that when they were figuring out their approach he and his partners spoke to as many general partners (GPs) as possible, to seek their perspectives. They have roughly a dozen LPs who are also GPs themselves. “They are by far the people who have helped us the most,” he said.
While seeking advice on portfolio construction is very helpful, you as the GP have to make the final call, he said. “Ultimately, LPs are backing you to make that decision. … You have to have that conviction that LPs are looking for, and founders are looking for too.”
