Flight to (Perceived) Quality & First-Time Venture Funds

I spoke at length today with a very large (assets, not girth) private equity fund-of-funds manager. Among other things, we talked about the prospects for first-time venture funds and the flight to (perceived) quality among investors in venture funds. Appearances notwithstanding, he says it is more difficult than ever for first-time funds. You must have something really, really special to make the cut — if you want institutional money.
So, where are venture investors putting their money, if not in new funds? To a fault with the marquee venture names, he said, to the point that venture investors will even turn a blind eye if half the GPs are gone. What a wonderfully messed-up market.


  1. I’m sure I’m not telling you anything you don’t know but GPs with track records don’t seem to be having trouble raising new first time funds.
    Based on my limited data set.

  2. Nivi is correct: first time funds made up of experienced GPs, with a reasonable track record, will be able to complete their raise – the question is how long will it take. And they might actually fare better than funds raised during the bubble that are out fund raising without exits to show for.
    LPs seem to want to maintain an ability to invest in new teams at the beginning of their history, just because it is so difficult to get in top flight funds.

  3. I think that’s true, but I also think there is far less interest in truly first-time funds than people have convinced themselves there is. The reality: Institutional funds are less interested in first-time funds than at any time in recent history. Sure, some experienced GPs can pull it off, but have a look at how many people passed on Shasta for how difficult it can be even for a team of experienced GPs.

  4. Agreed, I actually had Shasta when writing this post. It took them a while to raise, but at least they did close – and above the set target (glass half empty/half full :-).
    We’ll see with how the other first time funds today in the market are doing.