How To Scale Your VC Firm?
I might as well jump right in.
I have been operating Boost VC now for nine and a half years. Which is more than 25% of my life. When Brayton and I started Boost VC, people would ask us “but where are going to make money?” Like an accelerator was a side project that didn’t require 1000% of my attention for 10 years.
However those people in many ways are right, if I may be so bold as to assume their meaning. Our accelerator didn’t manage much money, and at it’s core, any VC firm or accelerator is a money manager and it does not impress people to say that you have $6m AUM (Assets under management) or in our case at the time $500k.
So, how do you scale as an asset manager. In the beginning I focused so hard on getting the right startups that we could afford, that I never thought about the growth of our assets that we want to to deploy. If that statement is confusing, what I mean is - VCs have two customers, the Limited Partners who you raise capital from, and the startups who you invest in, when we started I spent far more time focused on startups (which for picking is important).
So how do you scale? That was the question I asked myself in 2017-2018 very hard. And if you ask that question enough, you start to ask “What does scale mean?” Does it mean more assets, more companies, more employees? MORE MORE MORE?
To give a quick snap shot of Boost VC in 2017-18. Crypto took off, but we had not real exits, successes, or winners. We invested so early, and traditional VCs ignored the markets we liked for so long, that the traditional way that Limited Partners would judge us - IRR/DPI - Basically “How much money have you made for your investors?” wasn’t all that impressive.
When a question rattles in your brain for long enough, you have to do something about it. So I did. I set up meetings with five Managing Directors of firms who I felt knew what “Scale” was.
I met with Marc Andreessen and Chris Dixon at A16Z, I met with Doug Leone at Sequoia Capital and probably about 5 more.
I learned a lot about a lot of things, but I learned very little about scale.
I learned that internally larger venture funds have metrics that they track in order to gauge whether their deal flow is up to par. I learned that the way I perceived Venture Capital was not wrong, but it also wasn’t the way that larger forces thought of asset management. I learned that all that matters is being in a winner. I learned that every venture fund was different - from how they presented themselves to how they governed decision making.
And each of these things I learned definitely stood under the umbrella of “Scale.” but they weren’t giving me the answer I was searching for, and it was because I was asking the wrong question. The real question was “How do I want to scale?” and that was an impossible question for them to answer.
I’m so thankful to everyone who talked to me during this time. When I look back on those conversations I had, I think that it was integral to the development of where we are going at Boost VC. When we started to ask ourselves “How do we want to scale?” It also leads to more questions, like “Where are we going?”
After this process, we ended up REDUCING (not increasing) the number of investments we were doing by 50% because we wanted to deliver a better service to the founders. We ended up INCREASING the amount of money per investment because we wanted to deliver a better service to the “Sci-Fi” founder. And we doubled down our commitment to our accelerator program rather than scaling to something that would resemble a micro-vc fund.
When thinking about scale, what no one tells you is that it’s a very personal journey. It’s not about how other people think about it, it’s about how you can continue to deliver A+ service to your customer at a level that you can handle.