20VC How to Raise a Venture Fund from Deck to First Meetings to Final Close, Why Venture is a Young Person's Game and Why MultiStage Funds Have Not Ruined Seed with Rob Go, CoFounder @ Nextview

Summary Notes


In this episode of "20 VC" with host Harry Stebbings, Rob Go, Co-founder of Nextview Ventures, discusses the intricacies of raising venture capital and managing LP relationships. Rob shares insights from his journey, from a cold call that led him into venture investing to co-founding Nextview. He emphasizes the importance of timing, LP expansion programs, and the bandwidth of LPs in fundraising success. Rob also highlights the significance of team dynamics, long-term vision, and the willingness to adopt AI as a venture native approach. He advises new managers to embrace serendipity, be persistent without being pushy, and focus on building genuine relationships with LPs. Reflecting on the seed market, Rob sees opportunities in non-consensus thinking and the potential in overlooked startups. He envisions Nextview as a blend of benchmark's partner-driven model and YPO's ethos of founder support, aiming to provide a community of mutual excellence for entrepreneurs.

Summary Notes

Timing and LP Decisions

  • The likelihood of an LP (Limited Partner) investing is heavily influenced by timing.
  • LPs consider if they are expanding their program and if the fund fits into a specific category they are targeting.
  • LPs also assess if they have the bandwidth to commit within the fundraising timeline.

"The number one factor in whether an LP says yes or no is just timing. Are they expanding their program? Are they looking for whatever box or category they put you in? Do they have the bandwidth to be able to do it within the time frame they're trying to raise the fund?"

This quote highlights the importance of timing in an LP's decision to invest in a fund. It shows that LPs have specific criteria and schedules influencing their commitments.

Introduction to the Podcast

  • Harry Stebbings expresses enthusiasm for the podcast episode.
  • Rob Go is introduced as the Co-founder of Nextview, a leading seed firm.
  • Rob's background includes roles at Spark Capital and eBay.

"This is 20 VC with me, Harry Stebbings and oh my gosh, I love doing the show today. This was so much fun."

Harry Stebbings sets an enthusiastic tone for the podcast, indicating that the conversation will be engaging and informative.

Rob Go's Venture into Venture Capital

  • Rob Go entered venture capital through a cold call while in business school.
  • He joined Spark Capital after meeting specific criteria, such as attending a top business school and having relevant work experience.
  • Rob describes a lengthy and challenging interview process before receiving an offer.

"I got into venture because I got a cold call from a VC firm when I was in business school, and I got an email from a partner at Spark Capital because they were looking the team with the digital media background..."

This quote explains how Rob Go's career in venture capital began, emphasizing the role of chance encounters and the importance of having a desirable background.

Founding of Nextview

  • Rob Go was inspired by the rise of seed funds and saw an opportunity for a non-Bay Area seed stage specialized fund.
  • He and his partners, David and Lee, decided to capitalize on this opportunity.

"I figured there's going to be a seed stage specialized fund that's not based in the Bay Area. Why not give it a shot?"

Rob Go shares his rationale for founding Nextview, highlighting the strategic move to fill a niche in the venture capital market.

Venture as a Young Person's Sport

  • Rob Go believes venture capital is well-suited for young people due to the energy and hustle they can bring.
  • Nextview has a tradition of gifting backpacks to partners to symbolize their youthful approach.
  • Rob emphasizes that while experience is valuable, the energy of youth is a unique advantage.

"Venture is a young person's sport... The amount of energy and hustle that you're able to deploy as a young person is truly a competitive advantage."

This quote underlines the belief that youth and energy are significant assets in the venture capital industry, potentially outweighing experience.

Fund Size and Portfolio Construction

  • Nextview is investing out of its fifth fund, which includes a seed fund and an opportunity fund.
  • The seed fund is $135 million, and the opportunity fund is $65 million.
  • The fund sizes are based on portfolio construction, number of investments, average check size, and stage of investment.

"Our portfolio construction has been pretty consistent since we started the firm... today we try to write checks between a million to $3 million into precede and seed rounds."

Rob Go explains the logic behind Nextview's fund sizes, detailing the firm's investment strategy and how it guides fund allocation.

Reserves Strategy and Opportunity Fund

  • Nextview prioritizes initial investments and has a process for ranking portfolio companies for follow-on investments.
  • The seed fund invests heavily in seed rounds and somewhat in Series A, while the opportunity fund targets Series B or C.
  • Nextview's opportunity fund was well-received by LPs due to strong performance and reasonable ratios between the seed and opportunity funds.

"We have a process internally in handling follow on financings. We basically do a ranking of the portfolio every quarter."

Rob Go discusses Nextview's disciplined approach to managing follow-on investments, ensuring decisions are based on merit rather than external hype.

Equal Partnership at Nextview

  • Nextview operates with an equal partnership model across carry, salary, ownership, and governance.
  • This alignment has been valuable in maintaining long-term cohesion and avoiding renegotiation based on fund performance.

"We do have an equal partnership... carry and salary and ownership and governance."

Rob Go confirms the equal partnership structure at Nextview, emphasizing its importance in fostering a unified team dynamic.

Fundraising Process and Documentation

  • Rob advises picking a good law firm for setting up partnership agreements.
  • For fundraising, a deck and track record are the most crucial documents.
  • Additional materials may be used to highlight unique assets or capabilities.

"Most LPs care about deck track record are the main two things that they care about."

Rob Go advises on the key documents needed for fundraising, pointing out that LPs focus mainly on the fund's presentation and historical performance.

Fundraising Strategies for New Venture Funds

  • There are two primary strategies for raising a venture fund: securing an anchor LP first or using a bottom-up strategy.
  • An anchor LP is typically an institution with a strong relationship with the fund managers and is willing to write a meaningful check.
  • The bottom-up strategy involves gathering commitments from individuals or entities willing to trust the fund managers and then seeking institutional LPs.

"So typically an anchor is usually an institution, usually somebody who has some strong relationship with you who is willing to be the first." "You basically find the people who are willing to say yes and just trust you."

These quotes explain the two different approaches to fundraising for a new venture fund. The first quote describes the anchor LP strategy, while the second outlines the bottom-up approach. The relevance is in highlighting the initial steps a new fund might take in its fundraising process.

Challenges with Securing Anchor LPs

  • The process of securing an anchor LP can be lengthy and challenging.
  • Rob Go's fund initially attempted to secure an anchor LP but faced rejection due to various factors such as lack of track record and geographical biases.

"Because LPs said no." "It was easy to say no to us, right? We were new. We didn't have that much of a track record."

These quotes reveal the difficulty Rob Go's fund faced in securing an anchor LP. The LPs' rejections were based on the fund's novelty and perceived lack of experience, demonstrating the challenges new funds encounter.

Importance of Social Proof and Network Utilization

  • Harry Stebbings suggests using social validity from friends and network to build credibility and a "flywheel" of LP introductions.
  • The strategy involves leveraging existing relationships to gain introductions to potential LPs and using those connections as references.

"Go to your friends, use them for social validity. Go for the big names."

Harry Stebbings emphasizes the importance of using one's network to build credibility and attract LPs. The strategy relies on social proof and the multiplying effect of network connections to gain momentum in fundraising.

Concentration of Capital and LP Dynamics

  • Concentration of capital refers to the percentage of the fund's capital committed by a single LP.
  • A balance must be struck between securing sufficient capital and maintaining independence from LPs.

"Some funds don't want an LP to be more than 10% or 15%." "If you have an LP that's 20% of your fund, 25% of the fund, that's not ideal, but hopefully by the time you get to your next fund, you can start to dilute their influence."

These quotes discuss the concept of capital concentration and its implications. They highlight the trade-offs between securing enough capital to operate and the potential influence an LP may have if their stake is too large.

Qualities and Influence of Different Types of LPs

  • Different types of LPs, such as endowments and foundations, can have varying degrees of influence and desirability.
  • The individual LP's commitment and alignment with the fund's strategy are more important than the type of institution they represent.

"I think there are some LPs that are more influential than others."

This quote acknowledges that some LPs carry more weight in terms of influence and can serve as a strong signal to other potential LPs, but it also points out that the individual's commitment is crucial.

Managing LP Relationships and Expectations

  • Fund managers must be aware of the risks associated with influential LPs, such as the potential impact if such an LP withdraws their commitment.
  • Strong relationships with other LPs and clear communication are essential in navigating these situations.

"We had a pretty influential institution drop us in our third fund... 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."

The quote illustrates the vulnerability of depending on influential LPs and the importance of maintaining a diverse LP base to mitigate such risks.

Concessions for Anchor LPs

  • Fund managers should carefully consider any concessions requested by anchor LPs, such as ownership stakes or discounted fees.
  • Maintaining independence and control is often a key reason for starting a fund, and concessions can compromise these values.

"I wouldn't do it. I think it's a sign of strength not to take that deal."

Rob Go's stance against making concessions to anchor LPs reflects the belief in the long-term value of independence and control over the fund.

The Fundraising Process and LP Introductions

  • The fundraising process can involve hundreds of meetings and relies heavily on introductions from other venture capitalists and funds.
  • Sharing insights and lead lists is common among venture capitalists, demonstrating a collaborative approach within the industry.

"It was just amazing, Harry, how generous people were in sharing their insights in the process, their lead list..."

Rob Go expresses gratitude for the generosity of others in the venture community who shared their knowledge and resources, which is indicative of a collaborative culture in the industry.

Qualifying LPs and Effective Fundraising

  • Timing, portfolio composition, and LP strategy are critical factors in whether an LP will commit to a fund.
  • Fund managers should ask questions to understand an LP's current investment focus and capacity.

"The number one factor in whether an LP says yes or no is just timing."

This quote highlights the importance of understanding an LP's investment cycle and strategic priorities, which can significantly influence their decision to invest in a new fund.

Valuing Extreme Ideas for Portfolio Construction

  • Rob Go appreciates when ideas are taken to extremes as it stretches thinking and has influenced his approach to portfolio construction.
  • He learned from this method, even though it is not a common practice.

"I kind of enjoyed their probing, taking ideas to an extreme just to stretch your thinking, because I felt like I learned something from that."

This quote explains that Rob Go values the exercise of considering extreme ideas, as it has provided him with new insights and learning experiences that have impacted his own methods.

Ineffective LP Meetings

  • The worst LP meetings occur when the other party is disinterested.
  • Rob Go no longer aggressively pursues meetings, understanding that if someone is not interested, it's not worth forcing a meeting.
  • He believes there are other opportunities available and emphasizes the importance of great introductions over forced meetings.

"The worst lp meetings are just when it's clear the person doesn't want to be there."

Rob Go describes the futility of meetings where the other person is uninterested, implying that it's better to focus on meetings where both parties are engaged.

Follow-Up Strategies Post-Meeting

  • Rob Go cites Mark Suster's advice to always leave something out for follow-up engagement.
  • He discusses the use of a preliminary data room to gauge LP interest and mentions a subsequent data room for serious prospects.
  • This approach is likened to a video game, where LPs pass levels to show their commitment.

"Mark Suster had a post years ago, and one of the takeaways was, to paraphrase, like, always leave something more, always leave something out so that there's some reason to have a follow up."

This quote references Mark Suster's strategy of leaving a reason for follow-up, which Rob Go has adopted to maintain engagement with LPs through a staged sharing of information.

Persistence in Follow-Up

  • Rob Go believes in asking twice but not three times, moving on if ignored twice.
  • He acknowledges that a lack of response doesn't mean the opportunity is dead, and future interactions could reignite interest.
  • Harry Stebbings shares a personal anecdote about persistence paying off after numerous follow-up attempts.

"I have a basic belief that it never hurts to ask twice, but I never ask three times."

Rob Go outlines his personal rule on follow-up attempts, indicating a balance between persistence and recognizing when to move on.

Building Relationships Over Time

  • Harry Stebbings emphasizes investing in relationships, not just individual interactions.
  • He suggests meeting new LPs regularly and providing updates to build a relationship over time.
  • Both speakers agree on the importance of offering value and good news in communications, rather than just asking for something.

"I think it's really bad that you haven't responded. Blah, blah, blah. It's not bad. They haven't responded. They just don't like you in a lot of cases."

This quote from Harry Stebbings highlights the importance of understanding that a lack of response is not personal and emphasizes the need for maintaining relationships without a sense of entitlement.

Creating Urgency in Fundraising

  • Rob Go suggests closing a small amount for first funds to set a concrete timeline for final close.
  • He identifies LPs who take pride in being in the first close and advises using close dates as a forcing function.
  • Harry Stebbings discusses setting a reasonable timeline for LPs to make decisions without being too aggressive.

"Tricky thing about this business, as you know, where most lps have the incentive to be the second to last."

Rob Go points out the challenge in fundraising, where LPs often prefer not to be the first to commit, illustrating the strategic considerations in creating urgency.

Strategic Timing and Fundraising Cycles

  • Harry Stebbings mentions strategic times of the year for fundraising, such as Q1 for fresh allocations.
  • Rob Go questions whether the common approach of targeting specific times for fundraising is becoming too predictable.
  • They discuss the importance of aligning with LPs' planning cycles and the benefits of predictable operations.

"I think also going to your point there on kind of calendars, it's really important to know that there are strategically better times of year to raise for certain institutions."

Harry Stebbings addresses the tactical aspect of fundraising, emphasizing the need to understand and align with the financial calendars of LPs for optimal results.

LP Check Size Considerations

  • Rob Go advises flexibility with individual LP check sizes and a low minimum for institutions.
  • He believes in building an antifragile LP base and values introductions from smaller LPs.
  • Both speakers agree that it's beneficial to engage with a variety of LPs, as long as they are not too demanding of time.

"I would say for individuals I'm usually pretty loose. For institutions, we try to enforce some sort of a minimum, but the minimum is typically pretty low."

Rob Go explains his approach to LP check sizes, showing a preference for inclusivity and the potential for growth in relationships with various LPs.

LP Conversion Rates Across Fund Lifecycles

  • Rob Go observes that different types of LPs are more likely to invest at different stages of a fund's lifecycle.
  • He notes that fund of funds and large LPs have varying interests and strategies, which affect their likelihood to invest at certain times.
  • Rob Go describes his fund as having stability and a strong track record, appealing to certain LPs over others.

"Different types of lps convert better at different times in your life cycle."

This quote from Rob Go highlights the dynamic nature of LP engagement, with different types of investors being more receptive at various stages of a fund's development.

Differentiated Storytelling in a Crowded Market

  • In crowded markets, it's challenging to tell a unique story that stands out.
  • Despite challenges, there is still potential for the "new, new thing."

"Can very credibly tell a differentiated story, that could be a new, new thing, although it's so crowded, perhaps not."

The quote emphasizes the difficulty of creating a unique narrative in a saturated market, but also hints at the possibility of innovation.

Management of the Fundraising Process

  • Emerging managers often struggle with managing the fundraising process effectively.
  • The process should be organized but not overly rigid, allowing for flexibility and serendipity.
  • Relationships with LPs (Limited Partners) can take time to develop and may not bear fruit until much later.

"I think you want to be organized, especially the first couple of times you do this. I think you want to be very organized, but don't try to manage it too tightly, because you actually don't know enough to be able to manage it like a fine oiled machine."

This quote stresses the importance of organization in fundraising while acknowledging the need for flexibility due to inexperience.

Fundraising Challenges and Successes

  • The first fund is often the hardest to raise due to inexperience.
  • The easiest fund to raise is usually one that follows a successful track record.
  • Losing an LP can make fundraising particularly difficult.
  • The third fund was notably challenging due to the loss of an LP.

"The last fund was the easiest to raise. That was the fifth fund, and that... Was because of DPI and cashback."

This quote indicates that the fifth fund was the easiest to raise due to successful returns (DPI) and cash distributions (cashback) from previous funds.

Evolution of Perspective on Fundraising

  • Initial urgency and personal investment in fundraising can lead to rigidity.
  • Over time, a more relaxed approach can be beneficial, allowing for unexpected opportunities.
  • Building relationships with LPs is a long-term process that can eventually lead to significant partnerships.

"Like I said, I've become so much more zen about this."

The speaker reflects on how their perspective on fundraising has evolved towards a more relaxed and open approach.

Market Dynamics and Seed Investing

  • Multistage funds have increased competition and valuations in seed rounds.
  • Market conditions for seed investing fluctuate, and the current difficulty may not persist.
  • There are opportunities in the market for non-consensus thinking and investments in overlooked companies.

"I think the degree of difficulty is relatively high. I don't think that it will persist because at some point the multistage funds will say, hey, it's not really worth our time and effort to invest at this stage."

This quote suggests that the current competitive nature of seed investing may ease as multistage funds reassess their focus.

The Role of AI in Venture Investing

  • There is a growing trend of AI-native companies and teams.
  • AI is seen as a transformative force similar to the early days of the internet.
  • Not all investments need to be in AI companies, but an AI-native approach is highly valued.

"I was skeptical of AI. I am like all in on it."

The speaker has shifted from skepticism to full support for AI, recognizing its potential impact on software and efficiency.

Reflections on Investment Decisions

  • Past investment decisions, both misses and hits, have influenced the speaker's approach.
  • The speaker regrets passing on DraftKings due to a misjudgment of market size.
  • Success with the company Attentive has changed the speaker's views on investment terms like uncapped notes.

"My biggest miss was DraftKings. I was actually Jason Robbins' teaching assistant in college."

This quote highlights a missed investment opportunity that led to a change in how the speaker evaluates market size.

Venture Industry Critique and Aspirations

  • The venture industry is criticized for being too homogeneous.
  • The speaker admires unique and differentiated approaches, such as those by NDVC and Summit Partners.
  • There is a desire for more diversity in people, companies, and fund economics within the venture industry.

"I think venture is very one size fits all, even though there are a lot of different managers, a lot of different funds."

The speaker expresses a wish for greater variety in the venture capital industry to accommodate different types of investments and investors.

Future Vision for Nextview

  • The goal is to combine the best aspects of benchmark firms with the supportive community ethos of YPO.
  • The speaker envisions Nextview as a partner-driven model with a strong brand and concentrated investments.
  • There is an aspiration for Nextview to be a place where founders have lifelong, impactful relationships.

"My vision and our team's vision is for Nextview to be... I think if benchmark and YPO had a baby and focused on seed, that's what I'd love Nextview to be."

The quote outlines the speaker's ambition for Nextview to be a leading seed investment firm with a unique blend of investment excellence and founder support.

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