Some Questions I’ve Received About My Fund

Earlier this month, I wrote a post here about my investing activities, which began in January 2013. I wanted to have a little bit to show before being public about it, and since then, I have received many nice personal messages and votes of confidence. It just feels great. I really enjoy investing and always thought I would, so it’s great to know the reality is on par with the myth. Since then, I’ve also been asked many questions, and as I’m an open book and trying to learn as I go and interact with those who are interested, here are some of those inquiries and my answers to them, below. I’m also going to start writing more about each investment, how it happened, and other details (which I’m able to share). If you have any additional questions, please comment below.

How do you decide what to invest in? I have decided to focus on four areas: (1) marketplaces; (2) core infrastructure; (3) anything related to “mobile”; and (4) companies that bridge online-to-offline transactions. I’ve written often about my interests in #1, #3, and #4 on this blog, so that’s going to be the best articulation of my viewpoint on those spaces. On #2, I’ve discovered there aren’t many active small investors for startups working on mobile, enterprise, and cloud infrastructure, so I will work to help fill a small piece of that gap. I have made two infrastructure investments and am hustling to close a third.

How do you win a place in deals? Well, I’m writing small checks. That said, it is competitive. I’ve made it a point not to enter into a “sales” mode when trying to explain how I can help. Aside from my blog (which I hope is the most true reflection of my interests and values), I encourage anyone I’m interested in investing in to contact some of the first founders I’ve backed. I want to build a track record slowly based on “performance marketing.” Additionally, I am not looking to get too involved in a company, so it’s really about forging a personal relationship with the founder(s) and being available, being enthusiastic, and sometimes having hard/frank conversations. [As I was writing this, @satyap posted this, which touches on investor references.]

What stage do you invest at, and what are your check sizes? I’ll do anything from seed to Series A. Even though I monitor how these rounds shift in the market, I will admit that all the lines are blurring, so I’ll just say “early,” but not too early, and not when it’s taking off. I write checks between $25,000 and $100,000, though they tend to be on the smaller side and act as a platform for me to engage with the founders.

Will you invest outside Silicon Valley? Of course! My first deal was a remote team split between Florida, SF, and Canada; the second is located in NYC; and one of the most recent is in Los Angeles.

Can you invest in whatever you want, or do you have to pass it through your LPs or a committee? I am the sole GP in the fund. I am the only person who can write checks. I do not consult with my LPs on any deal, though I may in the future if an opportunity presents itself.

What’s the best way to pitch you? Don’t. I don’t like to be pitched. It’s nothing personal. In fact, of the ten deals I’ve done to date, three (3) have been referred to me by someone I know well (which is a great channel) and the rest (7) have all been initiated by me as outbound activity. Often when I approach a founder, I’ve mostly made up my mind already and usually have 1-2 questions I’m wrestling with. This helps me tune out noise and focus on my thoughts and intuition.

Was it hard to set up the fund? Yes. Luckily, one of my LPs is a long-time tech M&A attorney in the Valley. That helped a ton. I also had two friends who personally encouraged me, a lot. That was huge. Also, paperwork. So. Much. Paperwork. I also wanted to make sure the structure of the fund would afford me flexibility down the road. For instance, I can now spin up other funds in tandem with the turn of a key, no fees, all under the banner of Haystack.

Why don’t you take a fee on the fund? The reason is philosophical. Looking out into the world of venture over the next 2-3 years, I believe the oft-abused “fee structure” in venture capital will be a relic of the past. Sure, some of the very top firms will be able to maintain their fees (because they actually deliver), but most will do a budgeted fee (no tricks and back fees) and even now some of the top Sand Hill VCs offer lower salaries than you’d expect, or what was the norm in the past. So when I set up Haystack, I budged a fee to cover the the costs of (1) legal formation plus (2) the required accounting that’s needed for the LPs. In the future, maybe, if I’m good enough and mature to the point where I can lead or co-lead deals, I’ll ask for a fee, but I wanted to have something to point to before I did.

What will you do for Fund II? Good question. I don’t know yet. I’m thinking about that right now. The temptation for funds is to always go bigger (because fees increase, egos increase), but I am weary of this because this is where greed creeps in. I am not saying that greed is bad but I want to think carefully on this.

Can you or will you leverage AngelList? You bet. I’m not sure exactly how yet, but it’s something I’ve thought about for a long time and I have set up my fund with many of the similar philosophies behind things like syndicates and backers. I’ll write more on this separately as I sort out my thoughts, but overall, yes, yes, yes.

What’s it like to lose a deal? It’s OK. In the moment, definitely doesn’t feel great. Sometimes you feel like you dodged a bullet, and sometimes you realize “Hey, I should be aiming high and ideally get rejected from some deals.” We’ll see. I don’t have a big name or track record, so if I were a founder, I’d probably have questions, too. That’s all fair. I have to earn it. In the cases where I’ve tried and lost, I’ve made it a point to stay in touch with the founder and always offer to help via email. I’ll try to write about some of these later this year, and will see if I can get permission from those founders to discuss it.