11 Things I’ve Learned from Running a Micro VC and Tracking Unique Users

11 Things I’ve Learned from Running a Micro VC and Tracking Unique Users

Running a micro VC fund can be an exciting and rewarding endeavor, but it's important to understand the challenges and realities that come with it. In this article, I will share 11 valuable insights I've gained from my experience running a micro VC fund, as well as some key considerations when it comes to tracking unique users.

1. Most VC Funds are Failures
   Similar to startups, the success rate of VC funds is quite low. In fact, it's been estimated that 9 out of 10 VCs will not even achieve 1x returns. This statistic highlights the importance of thoroughly researching and understanding the industry before deciding to start your own fund. I strongly recommend talking with at least 10 micro VCs to gain insights and learn from their experiences.

2. Financial Considerations
   Running a micro VC fund requires a solid financial foundation. If you're not in a stable financial situation, it can negatively impact your personal life. It's essential to remember that most of the fund's capital needs to be used for investing, not for personal expenses or other ventures. For example, if your fund is $10 million, you'll have an annual budget of $200,000 to run your company. This means you might have to accept a lower salary compared to what you may have earned in the past.

3. Challenges of Bootstrapping
   Bootstrapping a micro VC fund can be incredibly challenging. On one hand, you may receive little to no salary while also facing restrictions on making money outside of your work. This can put a significant strain on your finances and personal life. It's important to carefully consider the financial implications and have a clear plan in place before embarking on this journey.

4. Personal Investment in the Fund
   In many cases, fund managers invest a portion of their own capital into the fund. This demonstrates their commitment and belief in the investments they make. Typically, fund managers invest around 1-5% of the fund size. Capital calls, which are the requests for additional funds from investors, are usually spread out over a period of 3 years.

5. Benchmark for Success
   The "gold standard" for profitable VCs is achieving a 3x return on investments. If you surpass this benchmark, you are considered excellent in the industry. It's important to set realistic expectations and work towards achieving sustainable returns for your investors.

6. Time to Raise a Fund
   On average, it takes microfund managers approximately 2 years to raise a fund. This timeline highlights the importance of patience and persistence in the fundraising process. Building relationships and demonstrating your expertise and track record are vital in securing the necessary capital for your fund.

7. Limitations on Accredited Investors
   According to SEC rules, micro VC funds can only accept up to 99 accredited investors. This limitation ensures that funds are not raised from a large number of small investors. As a fund manager, it's crucial to comply with these regulations and ensure that your investor base meets the necessary criteria.

8. The Meritocracy Debate
   The early stage fundraising landscape is often criticized for not being a true meritocracy. It's important to challenge and actively work towards a more inclusive and fair funding environment. The focus should be on the speed of execution and the quality of ideas, rather than external factors such as appearance or communication style.

Now, let's shift our focus to tracking unique users, specifically using Amplitude's system:

9. Three IDs for User Tracking
   Amplitude utilizes three different IDs to track users: device ID, user ID, and Amplitude ID. The device ID is a randomly-generated UUID set by default for web-based applications. It persists unless a user clears their browser cookies or browses in private mode. The user ID is configured by you and should be a stable identifier that does not change. If a user ID changes, Amplitude will treat it as a separate user.

10. Merged User Problem
    Amplitude faces a challenge when determining if an anonymous user with only a device ID is actually a recognized user with an Amplitude ID. To solve this problem, Amplitude cross-references the list of Amplitude IDs with an internal mapping of merged IDs. User IDs cannot be merged, so if you create a new user ID for an existing user, Amplitude will consider them as different unique users.

11. Importance of Accurate User Tracking
    Accurately tracking unique users is crucial for gaining insights into user behavior, analyzing trends, and making data-driven decisions. By implementing a reliable user tracking system like Amplitude's, you can ensure that your data is accurate and representative of actual user interactions.

In conclusion, running a micro VC fund can be a challenging yet rewarding journey. It requires careful financial planning, persistence in fundraising efforts, and a commitment to delivering sustainable returns for investors. Additionally, tracking unique users accurately is essential for making informed decisions based on reliable data. Remember to conduct thorough research, seek advice from industry experts, and continuously adapt and evolve your strategies to succeed in this dynamic landscape.

Actionable Advice:

1. Conduct extensive research and gather insights from multiple micro VC fund managers before starting your own.
2. Develop a solid financial plan and ensure you have a stable financial situation before embarking on a micro VC venture.
3. Focus on building relationships, demonstrating expertise, and showcasing a strong track record to successfully raise funds for your micro VC.