11 Things I’ve Learned from Running a Micro VC in the Last Year: GPT-4 and the Future of Funding

11 Things I’ve Learned from Running a Micro VC in the Last Year: GPT-4 and the Future of Funding

Running a micro VC fund is not for the faint of heart. It's a challenging endeavor that requires a deep understanding of the industry and a willingness to take risks. In my experience, there are several key lessons that I've learned along the way.

First and foremost, it's important to recognize that most VC funds are failures. Just like startups, the majority of VC funds will not even achieve 1x returns. This statistic may seem discouraging, but it highlights the importance of doing your homework before deciding to start your own fund. Before embarking on this journey, I recommend talking with at least 10 micro VCs to gain insights and advice from those who have already navigated the challenges of the industry.

Another crucial aspect to consider is your financial situation. Running a micro VC fund requires a solid financial foundation. Even if you have a $10 million fund, the majority of that money needs to be used for investing, not for personal expenses. In fact, if your fund is $10 million, your yearly budget for running the company may only be $200,000. This means that you may not be taking home a substantial salary, especially in the early stages. It's essential to be prepared for the financial sacrifices that come with running a micro VC fund.

Additionally, it's worth noting that many fund managers invest a portion of their own capital into the fund. This practice demonstrates their commitment to the success of the fund and aligns their interests with the investors. Typically, fund managers invest around 1-5% of the fund size. It's important to carefully consider how much capital you are willing and able to invest in your own fund.

When it comes to measuring success in the VC world, a "3x return" benchmark is often considered the gold standard. If you can achieve a return that is three times the initial investment, you are considered excellent. However, it's crucial to remember that the risks are high, similar to those faced by startups. But the potential upside can be equivalent to working a steady job at Google for 10 years. It's a gamble that can pay off immensely if you make the right investments.

It's also worth noting that raising a fund is not a quick process. On average, it takes around two years for a microfund manager to successfully raise a fund. This timeline highlights the importance of patience and perseverance in the industry. Building relationships, demonstrating your expertise, and proving your ability to generate returns takes time.

When it comes to fundraising, there are certain restrictions in place. According to SEC rules, a microfund can only accept 99 accredited investors. This means that you cannot accept small investments from friends and family to get started. The fundraising landscape is not a meritocracy, and it's important to navigate these regulations and limitations while seeking out potential investors.

Now, let's shift gears and talk about the future of funding and the role of AI. GPT-4, a reasoning engine, is revolutionizing the AI landscape. While AI models like GPT have access to vast amounts of information, their true power lies in their ability to reason and make sense of that knowledge. Reasoning without knowledge can lead to fabrication, while knowledge without reasoning is useless. The combination of both is what propels AI progress.

In an AI-driven world, those who organize and curate their own knowledge will have a significant advantage. By storing and cataloging your thinking and reading, you can enhance the intelligence and relevance of AI models like GPT-4. This is where platforms like Glasp, which facilitate the sharing and collaboration of knowledge, can play a crucial role.

In conclusion, running a micro VC fund is a challenging but potentially rewarding endeavor. It requires careful financial planning, a deep understanding of the industry, and patience during the fundraising process. While most VC funds may fail, the potential for success and significant returns is worth the risk. Additionally, the integration of AI reasoning engines like GPT-4 opens new possibilities for knowledge enhancement and collaboration. To thrive in this ever-evolving landscape, embrace these three actionable pieces of advice:

1. Do your homework and speak with experienced micro VCs before starting your own fund.
2. Prepare yourself financially for the sacrifices that come with running a micro VC fund.
3. Embrace the power of AI reasoning engines and curate your own knowledge to collaborate effectively with these technologies.

By following these steps, you can navigate the challenges of the VC industry while leveraging the potential of AI to drive future success.