There’s been no shortage of disruption in the venture industry over the last decade or so, yet someone is always trying to introduce a new way of doing things.
Among the latest is Propeller, a six-month-old outfit that’s hoping to entice family offices and sovereign wealth funds to invest in four new but distinct funds at once. One will focus on IoT investments; a second will focus on insurance-related investments; a third fund will focus on fintech more broadly; and a fourth intends to invest in women-led businesses.
Each of the funds is a standalone entity in terms of their economics. Carried interest, or the fund managers’ share in future profits, will not be shared across the funds. Management fees will mostly accrue to each fund, too, though every fund manager will pay into parent company Propeller to cover their shared expenses, including marketing and back office support.
None of the people leading the funds has extensive venture capital experience, though they do have relevant operational experience.
Propeller’s insurance fund, for example, is being managed by Antonio Derossi, who has spent time as a senior VP at Allianz Group and been COO of Fireman’s Fund Insurance Company. Its IoT fund is headed up by Eitan Bienstock, who has worked in telecommunications, for a tech incubator in Australia, and briefly, for a corporate venture unit. The women-focused fund, called Shatter, is being led by Shelly Kapoor Collins, who’s long run her own boutique advisory firm in Silicon Valley and who served as vice chair of a public service project at the Wilson Center in Washington that had her advocating for STEM education and women’s entrepreneurship around the world.
Of Propeller’s structure, founder Cam Yuill says simply that the “data shows that funds that are highly specialized in sectors provide the best returns, and that underlines our thesis.”
Maybe. Specialized funds have certainly been an emerging trend over the last five to 10 years, with hundreds of so-called micro VC funds springing into existence. But many have had to specialize in order to attract capital as the field has grown crowded; the jury is still largely out regarding their performance.
As for why Propeller is raising four funds simultaneously instead of serially, Yuill — who worked briefly as a VC at the seed-stage fund Structure Capital, is an angel investor, and who has been an operator at a variety of tech companies since the late ‘90s – says to “think of it like a fund of funds, except that we aren’t charging [our limited partners] double the fees.”
In other words, rather than invest in a fund of funds — which is a capital pool that invests in a portfolio of venture funds and charges management fees to do so — an LP can invest directly in a basket of different funds that are under the same roof and skip the middle layer.
Where Propeller’s structure makes even more sense is for the GPs, who can take advantage of Propeller’s pooled resources, as well as the support of colleagues going through a similar process at exactly the same time.
“We love it because the opportunity to band together under one umbrella creates a better opportunity for all our LPs,” says Kapoor Collins, who is raising a $50 million fund and says she already has numerous capital commitments from investors who like Shatter’s mission, which is to back female entrepreneurs who’ve raised seed funding already.
Explains Yuill of his experimental new firm, “With small standalone funds, a GP can pay [himself or herself] salary and legal, but after that, they aren’t left with much.”
If things go as planned, by banding together, Propeller’s GPs will avoid the same fate.