If you are an experienced manager or operator with a compelling pitch, there may be no better time to strike out on your own with a new fund.
Among those who took the leap in the past year were Sunil Dhaliwal, who founded Amplify Partners after 15 years at Battery Ventures; Hunter Walk and Satya Patel, who started Homebrew after more than 18 years combined as product managers at companies including Google and Twitter; and Mark Kvamme and Chris Olsen, who revved up Drive Capital after a combined 20 years at Sequoia Capital.
Demand for new venture funds has been strong for the past four years. The average number of new funds raised annually from 2003 to 2009 was about 28, but since that time it has been 42, according to data collected by Thomson Reuters (publisher of peHUB and Venture Capital Journal). As of late November, 38 new U.S.-based funds had been raised in 2013.
Those who have successfully raised new funds have the following advice.
The average size of a new fund raised in 2013 was about $31 million and the average size of a new fund raised over the past six years was about $35 million, according to Thomson Reuters. That contrasts with an average size of $102 million for the 127 total U.S. venture funds that raised a combined $13 billion as of late November.
The small size of new funds is partly due to more VCs focusing on seed investments, which require less capital, but also because there is less money available from VC-focused funds of funds as a result of lackluster returns.
One of the benefits of small funds is that new managers can meet their targets by pulling together lots of “small” checks from high-net worth individuals. Bullpen Capital initially raised $8.5 million in 2011 from “buddies” who were writing checks of anywhere from $100,000 to $500,000 each, said Paul Martino, Bullpen’s founder and managing partner.
“These were people we had made money for before, former employees, people we had worked for, former CEOs,” he said.
Photo of red funding sign from Shutterstock.