11 Things I’ve Learned from Running a Micro VC and the Rise of NFT Sales

11 Things I’ve Learned from Running a Micro VC and the Rise of NFT Sales

Venture capital (VC) funds and nonfungible tokens (NFTs) may seem like two completely different worlds, but there are some common points to be found. As someone who has been running a micro VC for the past year, I've come to realize that both industries have their own unique challenges and opportunities. In this article, I'll share 11 things I've learned from running a micro VC and explore the recent rise of NFT sales.

1. Most VC funds are failures, much like startups. It's a sobering fact that 9 out of 10 VCs will not achieve even 1x returns. This highlights the importance of doing thorough homework before starting a fund. I would advise talking with at least 10 micro VCs before deciding to pursue this path. It's crucial to understand the risks and realities of the industry.

2. Financial stability is vital. Running a micro VC requires a solid financial situation. Most of the fund's capital needs to be used for investing, not for personal expenses or other ventures. Even with a $10 million fund, the yearly budget for running the company may only be around $200,000. This means that the salary of a microfund manager may be significantly lower than what they made in their early career. It's important to be prepared for the financial sacrifices that come with running a VC fund.

3. Bootstrapping is challenging. Bootstrapping a micro VC is particularly difficult because you not only receive little to no salary, but you are also limited in your ability to make money outside of your work. This can put a strain on your personal life. It's essential to have a clear understanding of the financial implications and be prepared for the sacrifices required.

4. Personal investment in the fund is common. In many cases, fund managers invest a portion of their own capital in the fund. This shows their commitment and belief in the investments they are making. It also aligns their interests with the success of the fund. Capital calls, where investors contribute their committed capital, are typically spread out over three years.

5. The "3x return" benchmark. The "gold standard" for profitable VCs is achieving a 3x return on investments. If a VC fund surpasses this benchmark, it is considered excellent. This highlights the potential upside of working in the VC industry. While there is a significant amount of risk involved, the rewards can be substantial.

6. The time it takes to raise a fund. On average, it takes a microfund manager around two years to raise a fund. This process involves finding and securing commitments from accredited investors.

7. SEC limitations on investors. The Securities and Exchange Commission (SEC) places restrictions on the number of accredited investors a fund can accept. Typically, a fund can only accept up to 99 accredited investors. This prevents funds from accepting small investments from friends and acquaintances to gain momentum.

Now, let's shift our focus to the rise of NFT sales.

8. NFT sales skyrocket. Sales of nonfungible tokens (NFTs) exceeded $2 billion in the first quarter of this year, a staggering increase compared to the previous quarter. The industry is primarily dominated by the art and collectibles segments, with projects like CryptoPunks and SuperRare leading the way.

9. The average price of NFTs increases. Despite recent price drops from the highs of February, the average price of NFTs has seen a significant increase during the first quarter. This indicates a growing interest in the market and a willingness to invest in digital assets.

10. Buyer dominance in the NFT market. The first quarter saw more than twice as many buyers as sellers in the NFT market. This signals both a massive interest from newcomers and a desire from current owners to hold onto their assets. The resulting scarcity contributes to the market's dynamics.

11. Growing wallet activity. The number of active wallets involved in NFT transactions has increased substantially. In the first quarter, there were nearly 150,000 active wallets, which is more than 1.5 times the number from a year ago. This demonstrates the growing popularity and adoption of NFTs.

In conclusion, running a micro VC and the rise of NFT sales may seem like separate worlds, but they share common themes of risk, financial implications, and market dynamics. If you're considering starting a micro VC, ensure you do thorough research, understand the financial sacrifices, and be prepared to invest significant time into raising a fund. As for the NFT market, it's an exciting and rapidly evolving space that offers unique opportunities for artists and collectors alike.

Actionable advice:

1. Before starting a micro VC, talk to at least 10 micro VCs to gain insights and understanding of the industry.
2. Be financially prepared for the sacrifices involved in running a micro VC, as the majority of the fund's capital needs to be used for investments.
3. Keep a close eye on the evolving NFT market, educate yourself about the potential opportunities, and consider how it may intersect with the VC industry.

By combining these insights, we can gain a better understanding of the challenges and opportunities in both the micro VC and NFT industries. As the landscape continues to evolve, it's important to stay informed, adapt, and seize opportunities when they arise.