The Future of Funding: Lessons from Micro VCs and On Deck

The Future of Funding: Lessons from Micro VCs and On Deck

Introduction:
Running a micro VC fund or participating in programs like On Deck can offer unique insights into the world of startups, investments, and community building. In this article, we will explore the lessons learned from running a micro VC fund and the On Deck Series A Memo, finding common points and connecting them naturally. We will also incorporate unique ideas and insights to provide actionable advice for aspiring fund managers and entrepreneurs. So let's dive in!

Lesson 1: Most VC Funds are Failures
Similar to startups, the majority of VC funds do not achieve significant returns. Approximately 9 out of 10 VCs fail to reach even 1x returns. This statistic highlights the importance of doing thorough homework before starting a fund. It is advisable to talk with at least 10 micro VCs to gain insights and understand the challenges involved. Additionally, it is crucial to be in a solid financial situation as the business can be terrible for personal life, especially if the majority of the fund's capital is used for investing rather than personal livelihood.

Lesson 2: The Challenges of Running a Micro VC
Bootstrapping a micro VC can be extremely challenging. Fund managers often receive minimal to no salary and are restricted from making money outside of their work. These constraints make it essential to invest a significant portion of the fund size into the fund. Capital calls are typically conducted over three years, and managers often invest 1-5% of the fund size. Balancing financial stability and the potential for high returns requires careful planning and dedication.

Lesson 3: The "Gold Standard" for Profitable VCs
The benchmark for profitable VCs is a "3x return." Achieving this benchmark is considered excellent in the industry. While the risks involved in running a micro VC are similar to those faced by startups, the potential upside can be comparable to working a steady job at a tech giant like Google for ten years. Understanding this potential and striving to achieve the "gold standard" can drive fund managers to excel in their investments.

Lesson 4: Building Communities and Bundling Education
On Deck's approach to community building and education provides valuable insights. With the decline of organized religion, many individuals are searching for meaning, identity, and community in modern life. On Deck recognizes this need and offers programs that tightly interweave founders, angels, and talent fellowships. By bundling community with curriculum, On Deck creates exceptional experiences that attract members and drive further investment in research, development, acquisition, and distribution.

Lesson 5: The Power of Network-Based Utility
Offering utility to users is essential for long-term success. On Deck's success is evident in its high Net Promoter Score (NPS) and the significant number of referrals made by its customers. The focus on peer-to-peer education and creating a rewarding and personal learning experience contributes to the strong "repeat buying" behavior observed among fellows. By leveraging the power of networks and building a strong community, On Deck has established itself as "Silicon Valley in the Cloud."

Lesson 6: Adapting to New Norms and Opportunities
The COVID-19 pandemic has accelerated the shift towards distributed living and working. Remote work is becoming the new norm, with the percentage of employees working primarily from home estimated to settle at 20-30%. This shift presents opportunities for startups and entrepreneurs to cater to the needs of a remote workforce. By embracing new norms and adapting to changing circumstances, businesses can thrive in the post-pandemic world.

Actionable Advice:

1. Do thorough homework before starting a micro VC fund. Talk to experienced micro VCs to gain insights and understand the challenges involved.
2. Plan your finances carefully. Understand that running a micro VC may require minimal to no salary, and most of the fund's capital should be allocated for investing, not personal livelihood.
3. Embrace the power of community. Build strong networks and offer utility to your userbase. Create exceptional experiences that drive customer loyalty and encourage referrals.

Conclusion:
Running a micro VC fund or participating in programs like On Deck can provide valuable lessons for fund managers and entrepreneurs. By understanding the challenges, embracing community building, and adapting to new norms, individuals can navigate the world of investments and startups more effectively. Remember to do your homework, plan your finances, and prioritize building networks and offering utility to your users. The future of funding lies in the ability to execute quickly and create meaningful connections in the entrepreneurial ecosystem.