The Final Close for WLV Fund 1-The Opportunity Costs of Fundraising

The other day, I saw a tweet from my friend Samir Kaji on how much VC’s are paid.  I laughed because it is heavily skewed toward industrial venture capitalists with a series of funds, not micro VCs.  Micro VCs are not in the game for the management fee. We are in it because we are passionate about founders, ideas, and long term returns.

A lot, if not most of the industrial venture capitalists can snap their fingers and generate a new fund full of cash from existing LP’s on their wait list.  It’s not tough. They are going to make a lot of money even if they don’t return their fund.   Micro VC doesn’t have a staff.  You are the bottle washer, the rainmaker, etc.

We aren’t a lot different than the founders we invest in.  They only make money on exits, same with us.

At West Loop Ventures, we are actual first time fund managers with no prior experience in institutional VC.  We started fundraising in November of 2016 after spending the better part of a year figuring out what we wanted our fund to look like. It was a deliberative and disciplined approach from day one.  We really like our portfolio and our deal flow. We like the trajectory. We like our focus, and we like how we approach it since we do it differently from most micro VCs I have come into contact with.  

One of the things we really focus on is providing value for our LPs. I treasure them.  From experience, I know how hard it is to make money and I know how hard it is to deploy it efficiently for a great return.  I know a lot of small funds that simply look at the first fund as a stepping stone. They will write a $50K check just to have that company on their tombstone.  Our minimum check size is $250k and we have never written one that small.  We do actual math and try to figure out using probability and statistics if each investment we make will return the entire fund. If we can’t see our way clear to realize a gain like that, we pass.  The fund that writes the $50K check might get lucky and find the next Uber, but the odds aren’t with them. That’s especially true in the B2B Fin Tech space we play in.

Some of our portfolio companies have made great strides in the right direction.  Selfishly and financially, it would be better for Kenny and I to continue to try and raise more and more money.  Although doing so might help build our platform, we don’t think it would be the best thing for our LP’s or our existing portfolio companies. After all, every new dollar that comes in dilutes their investment and time spent fundraising distracts us from our existing portfolio.

The first close for our fund was November 17, 2016.  Since then we have made five portfolio investments. We have three investments in Chicago, one in NYC, and one in Ireland.  We followed our thesis to the letter and we think that we have exemplified the transparent ethics we prized prior to running a venture fund.  In some cases, we have been able to create some “call options” for our LPs that might juice their returns if the investments work out. Hey, we were traders.  We’re always looking for a little extra edge.

Our five investments are:

• Megalytics Inc in May 2017, Chicago.
• CF Innovations Group, Inc (CFX Markets and Open Finance Network) in August 2017, Chicago.
• FinMkt Inc in January 2018, New York City.
• Holberg Financial Inc in July 2018, Chicago.
• PipIT Global Limited, August 2018, Galway, Ireland.

We led four of five of our deals and subsequently took board seats in those four.  Not a lot of micro VC funds will do that. Our portfolio has a lot of team diversity in it, especially for a B2B Fin Tech portfolio.  We have seen a company do an ICO, and we have invested with institutional investors along with foreign investors. We have structured deals, and we have made sure that we have treated entrepreneurs, new investors and existing investors ethically and fairly.  That is a delicate balancing act. We have done and learned a lot in the last two years.

We have decided it is in the best interest of our LPs, and our portfolio companies for us to stop accepting new commitments, so we plan on doing so on October 19, 2018.  It will free us to focus exclusively on execution. We are very active investors…just ask the CEO’s of our portfolio companies. There is a lot of mentorship and other things that happen when you are investing at seed that just don’t happen at later stages.  Our portfolio companies rely on us for a lot more than capital and we want to be best positioned to help them.

We still have some dry powder and can invest in a few more portfolio companies, but we are going to be closed to new investors.