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7 first-time fund managers detail how they’re preparing to thrive during the downturn

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A fully fruited Orange tree being harvested in a barren Southern California desert landscape; first-time investors thriving in downturn
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Until a few months ago, the venture market was on a historic bull run that lasted for the better part of a decade. Many new investors and funds entered the fray, but the last few years also saw a proliferation of new venture firms. That trend came to a peak in 2021, when 270 first-time funds raised a collective $16.8 billion, according to PitchBook data.

That means there are now nearly 300 firms in the U.S. alone that raised their debut fund in the bull market and are finding themselves operating in very different market conditions today.

Over the past few months, many established investors have been quick to speculate that many of these new funds will struggle as markets worsen, even if they can survive. But these legacy VCs are forgetting that the new entrants don’t have to think about an existing portfolio with dozens of startups before making each decision.


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What’s keeping these first-time fund managers up at night isn’t their chances of survival or if they’ll raise a second fund, but rather how to best manage their time and assets in a seemingly volatile market. “The biggest challenge has been around scaling my team’s time, particularly around managing a growing portfolio at a time when founder support is critical,” said Ariana Thacker, founder of Conscience VC.

Several such investors, like Rex Salisbury, founding partner of Cambrian, said the downturn is actually a good thing for new funds given their long-term goals: “The current macro environment is causing the most pain at the Series B and beyond. But the exit environment that matters to a fund like ours, which is investing very early, is more than seven years in the future,” he said. “So, price compression in the short term, which is just starting to trickle down to the early stages of the venture market, is, if anything, a tailwind.”

That’s not to say these VCs aren’t being cautious about what they’re willing to bet on. “Our process for assessing companies has not changed, but we have certainly recalibrated our compass on assessing the current, instead of the future projected value of the companies we are considering investing in,” said Giuseppe Stuto, co-founder and managing partner, 186 Ventures.

“It makes sense for us to be more thoughtful than we already were with regard to portfolio construction and make sure we are not over-levered in any one vintage or ‘company stage’ pricing, e.g., 2021, pre-product, pre-revenue,” he said.

So how are these first-time fund managers going to fare? TechCrunch+ asked seven of them to find out how they’re preparing to tackle this volatile market, how this environment has changed their approach to investments and raising Fund II, the best way to pitch them and more.

We spoke with:


Giuseppe Stuto, co-founder and managing partner, 186 Ventures

How would you describe your fund’s thesis and structure?

We are a $37 million pre-seed and seed-stage fund focused on multiple industry groups — fintech, web3, enterprise SaaS, digital health and consumer-based innovations. Although we are geographically agnostic, we anticipate most of Fund I’s investments will be U.S. based (we have only one based internationally today in Nigeria).

Our strategy is that of a seed-stage generalist. That said, we consider our edge to be our ability to provide pragmatic “0 to 1” company growth know-how, given our founder/operator backgrounds and access to a network of industry leaders across multiple industries.

We have a traditional VC vehicle structure on a 10-year life cycle. The team today is composed of three full-time staff — myself (founder, investment team), Julian Fialkow (founder, investment team), and Sophie Panarese (platform and ops).

How are you preparing for the current, more conservative market conditions after raising a first-time fund in a bull market?

We like to think that we’ve been consistent in how we source and consider investment opportunities through both the bull market and the current market.

We started investing in September 2021, so we have a fair amount of bull market investing under our belt (about 10 of our 11 investments were completed during bull market times). We have two outstanding commitments, so we anticipate that by the end of August, we will have completed at least three investments after the bull market.

Our process for assessing companies has not changed, but we have certainly recalibrated our compass on assessing the current instead of the future projected value of the companies we are considering investing in.

We are on the tail end of constructing our internal “multiples analysis” across multiple stages (through IPO) on the industries we focus on. This will help us better assess how to value companies at the pre-seed and seed stages. We still consider things to be largely binary at the stage we invest in, but we are preparing for liquidity events (M&A and IPO) to be scarcer relative to the last few years.

It makes sense for us to be more thoughtful than we already were with regard to portfolio construction and make sure we are not over-levered in any one vintage or “company stage” pricing, e.g., 2021, pre-product, pre-revenue.

We have also been preparing for more conservative market conditions by spending time with fledgling founders and builders coming out of high-growth tech companies who wish to start their own companies.

We recognize that VCs will not be as quick to offer blank term sheets as they were last year, so this is a clear advantage for any VC (first time or not) who has deeply rooted relationships with builders and operators at tech companies, or who are plugged Into the tech ecosystem.

Finding founders early in their building life cycle is the oxygen of any seed-stage investment practice, and we’re happy that we now have time to properly prioritize this.

What advantages do first-time VCs have over more experienced competition in a challenging market?

I can only speak for 186 Ventures, but thanks to our founder/operator backgrounds and given that the majority of our fund is yet to be deployed, I’d like to think we can move faster and be more objective as it relates to assessing pre-seed and seed-stage companies.

We don’t carry any of the baggage that may come with having previous funds or having a lot of capital tied up in what seems to be highly overpriced vintages. Just like a founder, who looks at the world differently than subject matter experts, we (first-time managers) bring a fresh outlook of how certain problems and industries are developing.

I would argue that this fresh outlook also applies to building our brand, organization and foundation of the firm. We aren’t thinking about how things were done in the past. We’re primarily thinking about how to build a firm that will work best for future generations of startups and founders.

What are the biggest challenges you’ve faced this year as a first-time manager? What steps are you taking to prepare for the fourth quarter?

Prior to the market slowing down, the biggest challenge was keeping up with the speed of diligence in financing rounds. It was extremely unsettling, because in some instances, we were rushed to conduct diligence and were unable to spend ample time getting to know founders as people, which, in many cases, led to us just passing on the opportunity.

Today, juggling both portfolio support and the constant influx of founders looking to raise capital has been challenging to properly stay on top of. We take portfolio support very seriously, so we are constantly rethinking how we can service our founders in more efficient and effective ways.

We are faced with time trade-offs every day. For example, do we go deep with a new company after an initial meeting and risk meeting more founders? This balancing act is incredibly challenging.

We continue to refine our investment process to be more efficient and comprehensive. It is the only path forward.

What is keeping you up at night given the market conditions today?

Whether we are thinking about the markets and companies we partner with in a rigorous enough fashion.

Even if you believe that market conditions will return to the same level of “bull” as they were, as a fund manager, you still have a fiduciary duty to assess risk for all scenarios.

Right now, we are seeing that multiples will not just revert back to those of Fall 2021, and it is clear that startups without sound fundamentals will not raise follow-on financing. Companies will likely die faster in this environment, so as a first-time fund manager, we better have conviction in the companies we partner with.

Has your thesis changed between last year’s bull market and the ongoing downturn?

We are emphasizing more on how founders are thinking about how much capital they actually need for the current phase, and we are assuming there will be less time for experimentation, regardless of how much they raise in their seed round.

Bridge financing was readily available last year, so it was easy to hand-wave whether you’d be able to attract new investors at a “slight” up round. Part of our thesis now is that this bridge financing will likely not be as available, so depending on the industry and who the other financing partners are in the round, we have increased our “market readiness” threshold.

Indicators such as rapid market acceptance of a product have become increasingly important, particularly within consumer problem sets.

What are the kinds of companies you’re looking at this year compared to last year? Are there things you’re considering now that you wouldn’t have before or vice versa?

We’re focusing more on infrastructure gaps that will make industries, businesses and markets more resilient to some of the macro headwinds (inflation, cost of capital, etc.) headed our way.

We are still in the early innings of enterprise workflow automation actually being realized. For example, with web3, the last 90 days have shown us that we have a long way to go as it relates to the missing infrastructure, the “Lego blocks,” needed to sustain further growth and scale, especially in relation to financial services innovation.

Although we have a lot of experience with consumer tech, we have adjusted our expectations post-bull market to account for some of the macro headwinds today. Startups will have less marketing dollars to throw around and will likely need to have a more mature product in the market to compete with larger, existing incumbents.

We will likely spend less time backing pre-product consumer startups or consumer startups that have not yet demonstrated an ability to acquire customers in an organic, cost-efficient manner or that do not yet experience “rapid market acceptance.”

We’ve heard that first-time fund managers will struggle to raise a second fund now that the business cycle has turned. Do you agree with that perspective? If not, why not?

It certainly may not be as easy to raise a second fund today as it may have been over the last two years. We do not look at it as binary or in the sense that it will be an absolute struggle for firms that have developed a great platform and differentiated approach to attracting early-stage founders to work with them.

It’s a multidimensional question that factors in many variables. Ultimately, professional LPs understand that although we’ve entered a market where assets, particularly alternative assets, may be priced lower, having meaningful access to the venture asset class is incredibly important over the next few decades.

Furthermore, we will likely see (and already are seeing) incredible pricing and terms in the months and years ahead. You could miss out on exposure to investor-friendly valuations if you aren’t deploying into firms that have developed a solid foundation.

Of course, LP commit sizes will naturally decrease, and they may instinctually favor managers who have been at it for a longer time. But we are in a multidecade arena, where getting access to newer managers will continue to be a priority for many professional LPs looking into alternative assets.

How do you prefer to receive pitches, and is now a good time to reach out? What’s the most important thing a founder should know before they get on a call with you?

Pitches via email or Twitter work great for me. Now is a great time to reach out, as we have been more active than ever speaking with founders and digging in to assess if these companies might be a fit. Regardless of whether we invest, we try to be helpful if possible.

I would say the most important thing a founder should know is that we think a lot about what stage a company is in relative to whether venture capital is the ideal financing solution for them. Not all businesses require VC funding, and in many cases, it can be harmful to over-capitalize too quickly or prematurely.

This is not to say that we do not fund pre-product or pre-revenue ventures, but given the current environment, we have definitely been erring more on the side of whether a founding team has demonstrated an ability to generate proof points that justify deploying more capital into a product.

Anything else you’d like to comment on?

Ultimately, this downturn of sorts is healthy for the venture capital industry. It further bolsters the importance of having a solid foundation as a firm and as a venture thesis, regardless of the size of fund or team.

Sound fundamentals in how a manager and the firm finds founders, builds relationships with them; balancing competing priorities will increase the probability of weathering any storm.

Ariana Thacker, solo GP, founder of Conscience VC

How would you describe your fund’s thesis and structure?

Our thesis can be summarized as the intersection of consumer and science. We invest in technically defensible companies that have a clear benefit for the individual. Our quick litmus test for technical defensibility is: If it takes a group of smart engineers, researchers, developers or scientists 12+ months to hack what you’re doing, it’s a fit.

We believe the future vitality of humanity and the economy will depend, to a large extent, upon scientific and technical advances.

Structurally:

  • We are a follow-on investor and write checks between $100,000 and $250,000.
  • More than 50% of our companies are led by underrepresented founders.
  • The partnership is structured as a solo GP.

How are you preparing for the current, more conservative market conditions after raising a first-time fund in a bull market?

We have increased the time we spend serving our portfolio founders, largely through in-house products and services. For example, we have built a founder-facing fundraising app to more efficiently identify potential investors in our network and drive relevant introductions across the portfolio.

We continue to brainstorm about how we can provide scalable value to founders, particularly as it relates to dilutive and non-dilutive sources of capital.

Changing market conditions unlock new opportunities. We have dedicated more time to enhancing our understanding of what has changed, locating where opportunity exists and refining our focus areas accordingly.

We are actively deploying. As part of our due diligence, we have emphasized financial conservatism and a round size to support two to three years of operations.

What advantages do first-time VCs have over more experienced competition in a challenging market?

First-time VCs bring fresh eyes to the many new opportunities that will emerge as a result of changing market conditions, unfiltered by strong skepticism.

“First-time investors” also implies a younger generation navigating the market. This generational gap could lend itself to a more divergent thesis, particularly one focused on how younger generations are likely to respond to market shifts. These insights can inform a strong edge in investing.

What are the biggest challenges you’ve faced this year as a first-time manager? What steps are you taking to prepare for the fourth quarter?

The biggest challenge has been around scaling my team’s time, particularly around managing a growing portfolio at a time when founder support is critical.

We have embodied more of a startup culture rather than an investor culture, with an emphasis on internal innovation, customer (founder) service and learning. We will continue to ideate and build products, services, communities, alliances and processes to efficiently scale and support founders as a solo GP.

What is keeping you up at night given the market conditions today?

Uncertainty around how long the current market conditions will endure and the implications regarding follow-on funding for our early-stage companies.

Has your thesis changed between last year’s bull market and the ongoing downturn?

Since inception, we have remained disciplined in our approach to investing and pace of deployment.

Our thesis encompasses several types of businesses. Within the broad set of companies we can explore, we have spent more time on businesses that are likely to show meaningful velocity in and weather a prolonged down market.

We have emphasized partnering with founders who:

  • Have a demonstrated ability to execute with minimal resources.
  • Are able to successfully raise a round to support two to three years of runway.
  • Can achieve substantive milestones and address the riskier elements of the company earlier in the business’ life.

What are the kinds of companies you’re looking at this year compared to last year? Are there things you’re considering now that you wouldn’t have before or vice versa?

We have continued to engage pre-seed and seed companies. We have even initiated and proposed pre-seed and seed extensions to provide extra padding to founders that have recently closed their rounds. Recently, we have prioritized these preemptive extension round discussions.

We’ve heard that first-time fund managers will struggle to raise a second fund now that the business cycle has turned. Do you agree with that perspective? If not, why not?

Most managers, particularly first-time managers, will face greater difficulty in raising a subsequent fund. First-time managers really only have one opportunity to demonstrate their ability to outperform.

In the event of underperformance, experienced managers, compared to first-time managers, will be given more leeway by LPs. Experienced managers will be able to showcase a more robust track record that persevered throughout the bull market to investors.

Furthermore, several first-time managers that raised in 2020 and 2021 quickly deployed their funds in 12-24 month cycles, at the peak of the market frenzy. Compounding minimal maturation time given this quick deployment schedule and overall skepticism of these fund vintages and market conditions, I expect consolidation or the discontinuation of first-time funds.

How do you prefer to receive pitches, and is now a good time to reach out? What’s the most important thing a founder should know before they get on a call with you?

We have an open application on our website. We review all submissions daily. Beyond warm introductions, the open application is the best way to reach out to our team.

As for the most important thing a founder should keep in mind, the more we know in advance of a call, the better we can prepare and maximize our time together.

For the most efficient introductory call possible, please send non-confidential materials so we can best structure our process from the start.

Leslie Feinzaig, founder and CEO, Graham & Walker

How would you describe your fund’s thesis and structure?

We invest in software and digital businesses led by outstanding founders at the earliest stages. We source most of our investments from our five-year-old community, home to nearly 3,000 women-founded startups and more than 1,000 VCs and angel groups that invest in them.

How are you preparing for the current, more conservative market conditions after raising a first-time fund in a bull market?

We haven’t changed tracks at all. We’ve been very disciplined in our portfolio construction from day one — as a new fund, we couldn’t afford to otherwise.

We also always evaluate downstream financing risk for every investment because of the nature of our pipeline, which is nearly 100% women-founded companies. That means the great majority of our portfolio is in good shape despite changed conditions, and we’ve kept operating as before.

What advantages do first-time VCs have over more experienced competition in a challenging market?

The big advantage is that we don’t have many prior investments that are now high-risk, and we don’t need to focus as much of our time on triaging the portfolio. I can focus almost entirely on the path ahead.

What are the biggest challenges you’ve faced this year as a first-time manager? What steps are you taking to prepare for the fourth quarter?

Adjusting to being a public-facing VC has been a challenge. I want to help all founders but can only invest in a tiny fraction of the companies we meet.

It’s hard to disappoint so many people. We care deeply about honoring the founder’s time and effort, not being discouraging and not getting in the way of their success, even when we have to pass on the opportunity.

What is keeping you up at night given the market conditions today?

I wouldn’t say this is “keeping me up,” but I am paying closer attention to our portfolio companies that are looking at their next round in the next six months, just because fundraising has gotten slower.

Has your thesis changed between last year’s bull market and the ongoing downturn?

Not at all.

What are the kinds of companies you’re looking at this year compared to last year? Are there things you’re considering now you wouldn’t have before or vice versa?

Again, no change. The startups we invest in were never part of the frothy VC cycle. If anything, they were built for this moment. The only change we’re seeing is that founders’ expectations on terms are much more in line with where we like to invest.

We’ve heard that first-time fund managers will struggle to raise a second fund now that the business cycle has turned. Do you agree with that perspective? If not, why not?

It depends. I think anyone making the switch to large institutional LPs in the next 12 months will struggle to do that. But if your fund size allows you to stay focused on funds of funds, family offices, individuals and corporations, it may not be as much of a struggle.

How do you prefer to receive pitches, and is now a good time to reach out? What’s the most important thing a founder should know before they get on a call with you?

Please submit all pitches through our website.

Anything else you’d like to comment on?

I think there will be a big difference in performance by fund-focus stage, more so than between emerging managers and experienced managers. Even emerging managers that raised much bigger funds and have been investing beyond Series A will struggle more than smaller funds focused on pre-seed and seed.

Tom Ferguson, solo GP and managing partner, Burnt Island Ventures

How would you describe your fund’s thesis and structure?

We invest solely in early-stage water entrepreneurs (pre-seed and seed with rare Series A). We are investing out of a straightforward $30 million fund, aiming to write $350,000 to $750,000 first checks.

We believe that climate change really means water change to a large extent. As the ramifications for water management, from both the changing climate and aging or inadequate infrastructure across the world become apparent, there will be enormous opportunities for the best founders to provide products and services to make the situation considerably less painful.

How are you preparing for the current, more conservative market conditions after raising a first-time fund in a bull market?

Like most managers, we conducted an in-depth, midyear diagnostic of all of our companies, looking at runway, revenue recognition expectations, working capital management, spend ramps, etc. to make sure we are very clear on who will need more capital and when in the coming 12, 18 and 24 months.

We were pretty insulated from much of the froth in the general market, averaging one deal every two months, and we don’t see that changing. We are about 55% deployed and so are going to be both patient and prudent with our remaining capital.

We think the cardinal sin would be to not be in a position to save a company that is within sight of the first dollar of free cash flow, and we also want to protect ourselves from predatory terms in following rounds.

We’re drawing a pretty significant circle around our remaining capital for our existing companies but are keeping an eye out for great deals.

What advantages do first-time VCs have over more experienced competition in a challenging market?

Probably not many! It’s really important for us to avoid doing anything dumb, and so naturally, that leads you to instinctually become more defensive as external market conditions turn.

But the job doesn’t change! We still need to be waiting for and then leaning into opportunities with the best founders we’ve ever seen. Our edge doesn’t come from time in the market as a fund but our specialization.

What are the biggest challenges you’ve faced this year as a first-time manager? What steps are you taking to prepare for the fourth quarter?

Probably just the mental gymnastics of what the right risk-adjusted strategy is. My instinct was to turtle — just close the curtains and turn off the lights for four to five months, allow whatever was coming to come and just focus on our existing investments.

Mercifully, I decided to choose the middle ground: Be tremendously judicious but keep my ear to the ground and take my time. Thank God I did, because a real doozy came up two weeks ago that is riotously good.

In terms of preparation, we’ve just done a round of calls with a variety of players in the water sector to take the temperature of what’s going on. We’ve really listened to the insights of the founders from their business development activities, and we’ve done very careful planning around the likely capital needs in the remainder of our deployment period while maintaining very clear comms with our LPs.

Our Q2 update is coming with a recorded appraisal of what’s going on. We just want to minimize the likelihood of any surprises and understand where we can and should be putting our shoulder to the wheel.

What is keeping you up at night given the market conditions today?

I’m feeling pretty sanguine to be honest. But it’s probably supply chains and feeling like the downstream funders are going to flex their muscles when pricing follow-on rounds for some time to come.

But we don’t expect ridiculous valuations. Our portfolio structure is predicated on steady appreciation, so the only route through is to help founders build the strongest companies they can, hold out as long as they can and add capital where they can if it’s not too egregious.

But we’ve had one company raise their Series A in two weeks this month. Good companies will get funded. The supply chain issues feel more exogenous — it’s just a proper bastard.

Has your thesis changed between last year’s bull market and the ongoing downturn?

No. Water is (I hope) a unidirectional bet that’s insulated from all of the nonsense and carry-on, and now that [the nonsense has] disappeared, our world hasn’t changed much.

What are the kinds of companies you’re looking at this year compared to last year? Are there things you’re considering now that you wouldn’t have before or vice versa?

It really hasn’t impacted our appraisal. Maybe slightly more overweight on the raw cost savings (or hugely defensible productivity improvements) in the value proposition, given that every dollar is a lot greener than it was, and software is tempting because of supply chain issues. But access to affordable talent is its own supply chain problem.

But no. We’re still just looking for the best founders we’ve ever seen building products that users in the water sector would have to be insane not to buy.

We’ve heard that first-time fund managers will struggle to raise a second fund now that the business cycle has turned. Do you agree with that perspective? If not, why not?

I would imagine there’s a lot of truth to that, but I think LPs are still looking for the same things.

Things like a defensible argument as to why you are the person in your niche; demonstrated deal flow; sensible underwriting and analysis; trustworthy people; managers with good references from the founders they back; growth markets they find exciting that have room to run; a lack of crowds in deals; and credible pathways to top-decile performance.

I think if you tick a lot of those boxes, then if you get your head down and run the sales process, you can access the capital you need. That said, what the hell do I know? It might turn out to be an ungodly desert out there in six to 12 months.

All I can do is build the best argument I can and closely look after the experience of our current LPs who were brave enough to take a chance on what we’re building the first time round. The short- to medium-term external risk may have increased, but it just means (hopefully) that the best companies are on sale, and if you have liquidity and believe in the 10- to 12-year story, why not invest in that?

How do you prefer to receive pitches, and is now a good time to reach out? What’s the most important thing a founder should know before they get on a call with you?

We really like to receive our information through our website because it allows us to be as objective as possible. Now is absolutely a good time to reach out, but we are about to close investment 17 of our target of 20, so it’s getting tight.

We’re going to be very judicious, but we say that at the start of each call. The main thing to know is that we really believe in what we put online (sounds weird to write that, but the breadcrumbs really are there!), so read our blog, and the Burnt Island Five to help inform how to position what you’re doing. It’s remarkable how much of a difference it makes.

Anything else you’d like to comment on?

I think it’s tempting to get pretty worried about what’s coming down the pipe, and some of it really is genuinely daunting. But it’s a good time to remember ol’ Jeffy B’s idea of betting on things that don’t change.

Cost savings just got more valuable; allowing stretched teams to do more with less just got more valuable; and being a decent, straightforward, hardworking, communicative partner to both LPs and founders doesn’t get any less important.

The chess game of following the group doesn’t make a lot of sense. So sticking to your own internal knitting, and keeping an eye on the 10-year, not the 18-month horizon, seems to be the most logical plan. But again, what the hell do I know?

Rex Salisbury, solo GP and founding partner, Cambrian

How would you describe your fund’s thesis and structure?

I’m a solo-GP focused on backing the next generation of fintech founders through a community-based approach.

Cambrian’s thesis is simple: There is more talent in fintech than ever before; financial services still accounts for a huge amount of GDP; and digital penetration has a long way to go. Our mission is to connect the next generation of fintech founders to the best networks in the industry through our network.

How are you preparing for the current, more conservative market conditions after raising a first-time fund in a bull market?

Our plan remains the same: Back top talent early.

The current macro environment is causing the most pain at the Series B stage and beyond. But the exit environment that matters to a fund like ours, which is investing very early, is more than seven years in the future. So, price compression in the near term, which is just starting to trickle down to the early stages of the venture market is, if anything, a tailwind.

As such, our plan remains the same — maintain consistent pacing while backing the next generation of top founders in fintech.

What advantages do first-time VCs have over more experienced competition in a challenging market?

First-time VCs are at a significant disadvantage unless they have a clear, compelling point of differentiation in the market. I feel fortunate that our goal of providing access to the best networks in fintech has resonated with both limited partners and entrepreneurs regardless of market conditions.

What are the biggest challenges you’ve faced this year as a first-time manager?

In any role as an investor, operator or founder, time allocation is one of the most important decisions you face. This is particularly true for first-time managers, who are also solo GPs, as you are responsible for all aspects of the fund’s operations.

What steps are you taking to prepare for the fourth quarter?

For new investments, our plan remains the same: Continue to back talent early. For existing investments, given we started deploying in January 2022, our portfolio companies all have over 24 months of runway and are in a great position to weather changes in the funding environment and focus on building.

What is keeping you up at night given the market conditions today?

I am not staying up at night. If you’re building a first-time fund, you should expect market conditions to change many times over your life as a manager. If you are staying up late with worry, you should revisit your fund’s strategy, since it suggests it’s not durable for the long term.

Has your thesis changed between last year’s bull market and the current challenging conditions?

No. There is still great talent in fintech as well as huge opportunities.

What are the kinds of companies you’re looking at this year compared to last year? Are there things you’re considering now you wouldn’t have before or vice versa?

Nothing has changed.

We’ve heard that first-time fund managers will struggle to raise a second fund now that the business cycle has turned. Do you agree with that perspective? If not, why not?

Yes and no. If you have a differentiated value proposition, you should still be able to raise. It may take longer or be harder, but it’s still doable. If you don’t, it will be very very difficult.

Marco DeMeireles and Allan Jean-Baptiste, co-founders and GPs, Ansa Capital

How would you describe your fund’s thesis and structure?

We are an expansion-stage investment fund built to support founders as they scale from early-stage venture to growth. We are building a concentrated portfolio that allows us to closely align with our founders. It has been intentionally structured as an equal partnership — one that’s diverse, generationally relevant and institutionally credible.

Our investment strategy is GP-led and thesis-driven. It is rooted in the belief that the best outcomes in venture capital sit at the intersection of different themes, sectors and business models.

How are you preparing for the current, more conservative market conditions after raising a first-time fund in a bull market?

We have been preparing for this from day one and built Ansa to be an enduring investment firm that will thrive through multiple cycles. This has meant seeking out LPs who have a long-term mindset and view this as a partnership, such as Princeton University (PRINCO).

Our focus on early-growth-stage companies also gives us an important advantage here. We’re generally underwriting businesses based on potential for long-term free cash flow. This is why many of the businesses we’ve historically partnered with are profitable at scale.

In terms of today’s market, we’re being disciplined both in our investment pacing and in terms of entry valuations — nearly 99% of the capital committed to Fund I is yet to be deployed. We are also continuing to see alignment with our strategy and have recently received additional institutional commitments.

What advantages do first-time VCs have over more experienced competition in a challenging market?

There’s a massive advantage in starting from a blank slate. We haven’t adopted someone else’s brand or portfolio, so we’re able to be very intentional about our principles and investment philosophy.

Many LPs we engage with talk about legacy managers “aging out” — we don’t have this issue, we’re aligned to build Ansa for the next 30+ years.

First-time funds are also set up to avoid a related issue in that decision-making is not contingent on economics, and they can recalibrate as they age.

Lastly, in these new market conditions, first-time funds aren’t playing defense with a legacy portfolio that’s priced at high-water marks from previous years. They can solely focus on winning the mindshare of the best teams at better prices.

What are the biggest challenges you’ve faced this year as a first-time manager?

The number one challenge is sequencing our ambitions: How do you set the target of Fund I versus Fund IV? Who do you hire? What do you decide to use management fees on and why?

What steps are you taking to prepare for the fourth quarter?

We have invested less than 1% of the Fund I life to date, so we’re in a strong position to build a high-quality portfolio at more attractive prices. We’re staying active in the market and have a robust pipeline.

One of our priorities is building a broader team to serve our companies. We’re looking to build a team of investors who’ve shown a capacity to identify the strongest operators pursuing a particular problem; who can build a thesis around the best businesses approaching said problem and drive diligence in these opportunities to make the right (and often non-consensus) decision.

What is keeping you up at night in the market conditions today?

We’re focused on making sure every day we’re getting better at the things we can control — the team we hire, institutions we partner with and founders we back.

Has your thesis changed between last year’s bull market and the ongoing downturn?

The volatility in the market has widened the opportunity for our strategy. As the overall venture market increases its scrutiny of business models, performance and quality, experience in working with scaled businesses has become increasingly desired by founders.

In parallel, early stage capital partners and founders are increasingly eager to diversify their board room and complement the skill gaps of the existing board. In this new environment, there’s increasing value in networks that provide access to functional “doers” that focus on go-to-market and financial performance.

What are the kinds of companies you’re looking at this year compared to last year? Are there things you’re considering now that you wouldn’t have before or vice versa?

We are focused on finding and supporting early growth-stage businesses that have started to monetize and are scaling beyond early-stage venture. For investment decisions, we focus on quality and long-term cash-flow potential in the businesses we underwrite.

We see particular opportunity in companies that are pushing new markets, innovative distribution models and modern software tools — we’re excited by companies in healthcare IT, B2B SaaS, financial technology and open source software.

How do you prefer to receive pitches, and is now a good time to reach out? What’s the most important thing a founder should know before they get on a call with you?

We love to receive pitches over the phone, via Zoom or in person.

Building long-term relationships is important to us, and we have a preference for working with and getting to know teams before there’s even talk of “a deal.” We have a preference for businesses that are doing $2 million to $15 million in revenue, have raised little venture capital, are not primarily reliant on paid acquisition and are loved by their customers.

Founders who feel that they are a good fit across these dimensions should reach out to us on LinkedIn or email us directly.

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