Thoughts About My Fundraising Experience So Far

Thoughts About My Fundraising Experience So Far

When I started my VC fundraising journey, I wanted to work silently until I have some traction and then share my experience and thoughts about it. However, I am thinking now, why not to share it as it happens?!

Few months ago, I decided to leave my previous job, as Head of Investments in a regional internet holding company, to establish an independent venture capital fund management firm, and raise my first professional fund.

I prepared a presentation that seemed perfect to me at that time. But when I started to contact potential LPs (Limited Partners: investors in the fund), and started to meet with them to discuss my plans, I discovered that a lot should have been done before contacting them. At that time, I did not have a clear investment strategy, I didn’t even have a clear investment model!

My experience at the holding company was excellent in sourcing startups, evaluating them, negotiating investment terms, following up on their performance and KPIs, serving on their boards, and adding value through the special support services I introduced.

But the holding invests out of its own balance sheet because it is a profitable group, so I didn’t have any experience dealing with LPs there. On the other hand, my experience in the holding company didn’t include any exits, because successful startups were groomed to merge into the holding itself, so exits were not an option in there.

Although I met with lots of US VCs in my previous visits to the states, but my discussions with them were about investment practices, not about raising VC funds or dealing with LPs. So in my latest visit to Silicon Valley (last July), I focused on LP-relationships in my discussions with US VCs. Moreover, I am learning a lot about this and other professional VC aspects at the Kauffman Fellows program that I recently joined.

In July, I finalized my investment strategy and model for my new firm, Sinbad Ventures, and I established some really good strategic partnerships. I also created a totally new presentation: “Sinbad Ventures Executive Summary” that goes with the new website design.

While still fundraising, I would like to think about my options :-)

Option 1: Keep Going

With the new updates, I had some serious interests and good meetings. Almost all potential LPs said that I have an excellent model, but none of them has officially committed to invest in the fund yet. The lack of a proven VC track record (with successful exits and investment returns as explained above) is the main reason behind this.

They are also concerned about the legal and tax complications of participating in a Delaware fund (and startups). For me, Delaware is needed to make it easier for next round investors from USA to invest in our portfolio startups. The whole model is built on taking startups from Arabia and helping them raise their next rounds from US VCs.

Well, raising a VC fund usually takes from 1 to 3 years, and the hardest part is to sign the first LP. So my plan is to give it until the end of this year to sign at least one main LP. If this happens inshallah, I will continue raising the rest of the fund. If this doesn’t happen, then I will have to think about the other several options below.

This reminds me of a post I read earlier about a VC who shared his experience in fundraising after contacting 515 LPs. Of this number, roughly 250 passed for various reasons and 100 were non-responsive. He then got 154 visits, 97 due diligence requests, 33 second visits, and 12 reference requests, to ultimately produce 9 institutional investors in his fund, which was the second fund by the way!

Here is his post: “Confessions Of A VC Who Raised Money During Financial Armageddon”. It’s long, but worth reading. He shares the major lessons he learned in that journey.

For me, I have a list of only 60 potential individual LPs from the region. I have contacted half of them so far. When I’m done with all of them, I might hire private placement agents who can reach potential LPs from their own networks.

Option 2: Change The Target LPs

Because the fund size is small ($5m-$10m), I am currently focusing on wealthy individuals from the Middle East as potential LPs instead of big institutional investors. But as explained above, they are concerned about the legal and tax complications of participating in a Delaware.

So alternatively, I might better utilize Kauffman Fellows Network to target US LPs as opposed to Arab LPs. They are more familiar with US laws and regulations, thus we will avoid such concerns.

It might also be a good idea to post the fund on AngelList to crowd fund it privately from US Angel Investors.

Option 3: Crowdize It & Globalize It

Convert it to a global “Crowd-VC-Fund” or in other words: A VC-managed crowd funding platform as follows:

• - We post all potential startups after an initial screening on our site for people to fund (up-to 500 investors per startup).
• - Startups will be Graduates of Accelerators (Post-Seed / Per-Series A) from around the world raising $250K-$500K. I believe there are more than a 100 accelerator around the world now!
• - If successfully funded, each startup investment-amount will be considered a fund on it’s own.
• - Each fund will have a 2/20 model with a 5 years term
• - We will represent the crowd investors as only one shareholder in the startup and send them quarter performance reports.
• - All legal fees for each startup will be paid from the investment amount

It sounds like a management nightmare, but it can be automated on an online platform.

Option 4: Join A VC Firm For Track Record

As an alternative, I may better utilize my Kauffman Fellowship, my humble VC experience, and my MBA to join a regional or international VC firm (not a holding company).

I may apply for a partner or principal position and work there for 3–5 years to build a true track record of investing and exiting, in addition to managing the relationship with LPs, and then try raising funds again for my own VC firm.

Option 5: Back To Entrepreneurship

My first entrepreneurial attempt was back in 2005/2006 when I started an online startup that lasted for only one year. So I may get back to entrepreneurship in the flied that I am most passionate about “Crowdfunding”.

Few years ago, I won at the MIT Arab Business plan competition for BlogSouq project, but I never acted on it. Here is the business plan that my partners and I presented. At that time, I also did a research about Crowdfunding that I posted later on my blog.

BlogSouq idea is not valid any more because nowadays:

• - For private secondary market transactions, there are SecondMarket and SharesPost,
• - For rewards-based financing, there are Kickstarter and IndieGogo,
• - For equity-based financing communities and platforms there are: AngelList, CrowdFunder, CircleUp, GrowVC, Seedrs, and many others.

But I still believe that there is room for innovation and excellent opportunities in this domain. Take Crowdever for example!

It would be great to read your comments about “Sinbad Ventures Executive Summary” and about the options above.