Insights from Running a Micro VC and Building a Strong Organizational Culture

Insights from Running a Micro VC and Building a Strong Organizational Culture

Introduction:

Running a micro VC fund can be a challenging yet fulfilling endeavor. In this article, we will explore the lessons learned from running a micro VC fund and the importance of building a strong organizational culture. By connecting these two topics, we can gain valuable insights into the world of venture capital and how a cohesive culture can contribute to success.

1. The Reality of VC Funds:

It is crucial to acknowledge that most VC funds fail. Just like startups, the odds are stacked against success, with approximately 9 out of 10 VCs failing to achieve even 1x returns. Therefore, before diving into the world of micro VC, thorough research and due diligence are essential. Connect with experienced micro VCs, learn from their experiences, and understand the financial implications of starting a fund.

2. Financial Considerations:

Running a micro VC fund requires a solid financial foundation. It is important to note that the majority of the fund should be allocated for investing, not for personal expenses or other ventures. Even with a $10 million fund, the yearly budget for the fund manager may only amount to $200,000. Bootstrapping a micro VC can be challenging as it often involves sacrificing personal income while being restricted from generating additional income outside of the fund.

3. Investment in the Fund:

Fund managers commonly invest a portion of their own capital into the fund, typically around 1-5% of the fund's size. This demonstrates their commitment to the success of the fund and aligns their interests with those of the investors. Capital calls are usually spread out over a period of three years, allowing for a strategic deployment of funds and minimizing financial strain.

4. Benchmark for Success:

The "gold standard" for profitable VCs is a 3x return benchmark. Achieving this level of success places a VC fund in the excellent category. However, it is important to recognize that the risks involved in running a micro VC are comparable to those of a startup. The potential upside can be equivalent to working a stable job at a tech giant like Google for a decade.

5. Challenges in Fundraising:

Raising a micro VC fund takes time, with an average duration of approximately two years. Compliance with SEC rules limits the number of accredited investors to 99, preventing the fund from accepting small investments from friends and acquaintances. The fundraising landscape may not always be a meritocracy, emphasizing the need for speed of execution rather than superficial factors.

Transition:

Building a strong organizational culture is essential for any company, including a VC firm. Now, let's shift our focus to the insights gained from Coinbase's organizational culture.

6. Effective Communication:

To ensure that key messages resonate throughout an organization, they must be communicated repeatedly through various channels and by multiple individuals. Coinbase emphasizes the importance of unity and focuses on the mission rather than allowing divisive beliefs to harm inclusion. Attacking colleagues based on differing beliefs is strongly discouraged, fostering a collaborative and respectful environment.

7. Value Alignment and Team-First Mentality:

Skills alone are not sufficient for success within Coinbase. Value alignment and a team-first mentality are considered essential qualities. The company does not tolerate brilliant jerks and works with individuals to improve their performance. However, if a pattern of detrimental behavior persists, Coinbase is willing to make the difficult decision of parting ways with the individual for the betterment of the team.

8. Transparency and Feedback:

Coinbase strives for transparency by sharing information openly within the company, including bad news. Prompt communication is valued, as delaying the sharing of news only worsens its impact. Positive feedback is given publicly, while negative feedback is generally provided in private, always with the intention of helping colleagues and the team improve. Kindness and humility are prioritized over being right.

9. Preserving the Founding Moment:

Coinbase maintains a culture that embraces the spirit of the founding moment. This includes staying hungry and foolish, valuing play as a source of creativity, ignoring naysayers, rapidly prototyping, and embracing the concept of shipping even embarrassing first versions. This mindset ensures that Coinbase continues to innovate and build for the future.

Conclusion:

Running a micro VC fund presents unique challenges, but with thorough research, financial stability, and a clear understanding of the industry, success is attainable. Additionally, building a strong organizational culture, as exemplified by Coinbase, fosters a collaborative and inclusive environment that drives success. By learning from these insights, aspiring micro VCs can navigate the industry more effectively and establish a culture that sets them apart.

Actionable Advice:

• 1. Conduct extensive research and seek advice from experienced micro VCs before starting your own fund.

• 2. Ensure you have a solid financial foundation and understand the budgetary constraints of running a micro VC.

• 3. Focus on building a strong organizational culture that values unity, transparency, feedback, and a team-first mentality.

Note: This article is a creation of the AI language model and does not cite any specific sources. The information provided is based on general knowledge and should not be considered as professional advice.