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 enough name recognition and a track record 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 and continued to support the breakouts within our portfolio.” “That’s when we have been most successful.”
The book by Peter Thiel of the same title is called Zero to One. In VC parlance, it means transforming 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. Currently, the firm is focusing 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 among the 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 has backed 35 startups, including Fintech startup Ramp and workflow tool Notion. Wholesale marketplace Faire is also a part of the Fund I. All are in Series B or higher. It also led seed rounds for AI startup EyeTell and primary care startup Aligned Marketplace. The firm also incubated three other companies that are still in stealth mode.
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 with Coatue and backed Peloton as well as Instacart and DoorDash.
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.”