11 Things I've Learned from Running a Micro VC in the Last Year

Kazuki

Hatched by Kazuki

Sep 04, 2023

4 min read

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11 Things I've Learned from Running a Micro VC in the Last Year

Running a micro VC fund is no easy feat. It requires dedication, financial stability, and a deep understanding of the industry. Over the past year, I've learned some valuable lessons that have shaped my approach to this business. In this article, I will share 11 key takeaways from my experience as a micro VC fund manager.

  • 1. Most VC Funds Are Failures

It may come as a surprise, but the truth is that the majority of VC funds fail to deliver satisfactory returns. Just like startups, the odds are stacked against VCs, with reports suggesting that 9 out of 10 funds won't even achieve a 1x return. This statistic highlights the importance of thorough research and due diligence before venturing into the world of micro VCs.

  • 2. Passion Makes the Work Feel Like Play

If you're passionate about the work you do, it won't feel like work at all. Running a micro VC fund requires long hours, intense decision-making, and constant engagement with startups. However, if you genuinely enjoy the process and have a genuine interest in supporting entrepreneurs, the challenges become more manageable and fulfilling.

  • 3. Do Your Homework

One common mistake aspiring micro VCs make is diving into the business without doing enough homework. Before starting your fund, it's crucial to speak with at least 10 other micro VCs to gain insights into their experiences. This will give you a more realistic understanding of what to expect and help you make informed decisions.

  • 4. Financial Stability Is Key

Running a micro VC fund can take a toll on your personal life if you're not in a solid financial situation. Even if you have a sizable fund, most of the money should be allocated for investing purposes, not for your livelihood or personal expenses. It's important to have a clear understanding of your budget and financial obligations before embarking on this journey.

  • 5. Bootstrapping Challenges

Bootstrapping a micro VC fund is a challenging endeavor. On one hand, you'll have little to no salary, and on the other hand, you'll face restrictions on making money outside of your work. It requires a careful balancing act to sustain your fund while ensuring your own financial stability.

  • 6. Invest in Your Fund

In most cases, fund managers invest a portion of their own capital into the fund. This is seen as a sign of commitment and belief in the fund's potential. Typically, managers invest around 1-5% of the fund size, showing their confidence in the investments they make.

  • 7. Capital Calls and Timing

Capital calls, the process of requesting funds from investors, are usually spread out over a period of three years. This allows for a more flexible approach to funding and ensures a steady flow of capital to support investments. Proper timing and coordination of capital calls are essential to maintain a healthy fund.

  • 8. The "3x Return" Benchmark

The "3x return" benchmark is often considered the gold standard for profitable VCs. If a fund achieves a return of three times the initial investment, it is deemed excellent. This benchmark serves as a measure of success and guides the expectations of both fund managers and investors.

  • 9. The Lengthy Fundraising Process

Raising a micro VC fund is a time-consuming process that can take up to two years. This is primarily due to the regulatory requirements and the need to build trust and credibility with potential investors. Patience and perseverance are key qualities for fund managers embarking on this journey.

  • 10. Limited Accredited Investors

According to SEC rules, micro VCs can only accept up to 99 accredited investors into their funds. This restriction ensures that the fundraising process remains regulated and prevents the accumulation of small investments from friends or acquaintances. It emphasizes the need for a more structured approach to fundraising.

  • 11. Moving Towards a Meritocracy

The early-stage fundraising landscape is not yet a meritocracy. While progress has been made, there is still work to be done to ensure that funding decisions are based on speed of execution rather than superficial factors such as appearance or communication style. The future of funding should prioritize the value and potential of startups, leveling the playing field for all entrepreneurs.

In conclusion, running a micro VC fund is a challenging but rewarding endeavor. To thrive in this industry, it's important to do thorough research, maintain financial stability, and be passionate about the work you do. Here are three actionable pieces of advice for aspiring micro VCs:

  • 1. Conduct in-depth research and connect with experienced micro VCs before starting your fund.
  • 2. Secure your personal finances and have a clear budget to run your company effectively.
  • 3. Embrace the fundraising process as a long-term commitment and be patient throughout the journey.

By following these insights and implementing the actionable advice, you'll be better equipped to navigate the world of micro VC funds and increase your chances of success.

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