According to PitchBook’s data for Q1, venture firms raised $9.3 Billion in Q1. This means that this year’s total is unlikely to match or exceed 2023’s $81.8 Billion. emerging managers feel the frost of the fundraising market the most. However, some emerging VCs, like A*, have a track record and name recognition that allows them to find success.
A*, led the former Eventbrite founder Kevin Hartz and former Coatue partners Bennett Siegel and Gautam Gupta of Opendoor and Uber, raised $315m for its oversubscribed fund II. The firm will continue to focus on leading seed rounds, doubling down its portfolio companies at Series A and making select new investments in the Series B stage.
Siegel explained, “We found that our product market fit was really at the seed and initial stage. We partnered with founders to zero to one, while continuing to support the breakouts within our portfolio.” “That’s when we have been most successful.”
The phrase “zero to one” is a reference Peter Thiel’s book of the same title. In VC jargon, it means turning a new concept with no proven track record into a business with a product and clients, rather than a startup that replicates or expands an existing idea.
The fund will remain a generalist, investing in different industries. Gupta stated that they prefer to find the best founders and then follow them into whatever industry they are building. Right now, the firm is focusing a lot on AI and the resurgence in consumer tech.
Gupta said, “Everything will take care of itself if you support the right people.”
The LP base of Fund II is the only noticeable difference between Fund I. Fund II was raised exclusively from institutional investors, whereas Fund I had a number of well-known VCs as well as former operators. Max Levchin, David Sacks, and Peter Thiel, all of PayPal fame, were Fund I backers, along with Tony Xu, the cofounder and CEO of DoorDash and Eric Wu, the cofounder and president of Opendoor.
Another VC firm told me this week that switching to institutional investors at the Fund II stage is not uncommon. This is because the firms have a good track record and can attract institutional investors. These deep-pocketed investor become necessary when firms want to grow their fund size.
A* doesn’t want to raise as much as possible. It deliberately kept Fund II as a modest step above the firm’s first Fund — Fund I raised 300 million, exceeded its $250 million target and closed in 2021.
Siegel said, “Fund size is a strategy and strategy is the fund size.” “We want to be a preferred partner, but small enough so that we can focus our efforts on generating incredible returns. We wanted to focus more on mentorship than just deploying large amounts of capital.
The company invested in 35 startups, including Ramp, a fintech startup, Notion, a workflow tool, and Faire, a wholesale marketplace, all of which were Series B or higher. It also led seed rounds for companies such as AI startup EyeTell and recruiting marketplace Paraform. The firm also incubated three other companies, which are still in the stealth phase.
The firm believes it stands out in a very crowded market for seeds because of its founding partners’ vast experience across three decades and industries.
Hartz’s reputation in the tech world is also a plus. Hartz scaled Eventbrite and Xoom to their respective exits, before working at Founders Fund. He also invested in companies like Gusto Pinterest and Reddit. Gupta is the former head finance at Uber, and was also COO and CFO of Opendoor. Siegel was an investor at Coatue and backed Peloton as well as Instacart, DoorDash and others.
The group had been friends for many years before they began talking about launching the fund in late 2020. They are now looking to use the latest fund to continue to find and back great early-stage entrepreneurs in a market that is very different from where they originally launched.
Hartz said that the challenge of today’s era is that companies do not die from starvation, but rather indigestion. “We can help these companies who are hungry for insights and want that assistance get from zero to a place where capital is abundant.”