Venture firms are estimated to have raised $9.3 billion in the first quarter PitchBook datameaning this yr is unlikely to satisfy or exceed 2023’s $81.8 billion figure. While emerging managers are feeling the brunt of the frost in the fundraising market, some emerging VCs like A* have enough name recognition and adequate track record to proceed to achieve success.
A*, led by former Eventbrite founder Kevin Hartz, former Coatue partner Bennett Siegel and former Opendoor and Uber operator Gautam Gupta, has raised $315 million for its oversubscribed Fund II. The company plans to proceed to focus on leading seed rounds and increasing the share of portfolio corporations in Series A, in addition to make chosen recent investments at the Series B stage.
“We have found that our product market fit is truly in the seed and seed stages, working with founders from zero to one while continuing to support the breakthrough products in our portfolio,” Siegel said. “That’s where we’ve had the most success.”
Zero to One is a reference to Peter Thiel book of the same name. In VC jargon, it means turning a recent, unproven concept into a company with a product and customers, versus a startup that imitates or expands on an existing idea.
The fund will proceed to be general in nature and will invest in a number of industries. Gupta said they like to seek out the right founders and follow them into whatever industry they are expanding into. Right now, meaning the company is spending a lot of time on artificial intelligence and the resurgence of consumer tech.
“Everything takes care of itself if you support the right people,” Gupta said.
The only noticeable difference between Fund I and Fund II is the vehicle’s LP base. Fund II was obtained entirely from institutional investors, while Fund I used to be supported by many well-known VCs and former operators. Max Levchin, David Sacks and Peter Thiel, formerly of PayPal fame, have backed Fund I, in addition to DoorDash co-founder and CEO Tony Xu and Opendoor co-founder and CEO Eric Wu, among others.
Switching to institutional investors is not unusual at the Fund II stage, one other VC firm told me this week, after doing the same thing. This is because corporations have enough experience to draw institutional investors, and deep-pocketed investors change into essential as corporations look to extend the size of their funds in the future.
However, A* does not intend to gather as much money as possible. He intentionally kept Fund II only barely above the company’s first fund – Fund I raised $300 million, exceeded its $250 million goal and closed in 2021.
“Fund size is strategy, and strategy is fund size,” Siegel said. “We want to be a partner of choice, but small enough that we can focus on generating incredible returns for our investors. We wanted to focus on mentoring, not just investing large capital funds.”
The company has backed 35 Fund I startups, including fintech startup Ramp, workflow tool Notion and wholesale marketplace Faire, all at Series B or higher. He has also led seed rounds for corporations akin to AI startup EyeTell, recruiting marketplace Paraform, and primary care startup Aligned Marketplace. The company also incubated three corporations that are still under wraps.
The company believes it stands out in a very crowded seed market as a result of its three founding partners and their vast experience in various industries and three different a long time.
Hartz’s name recognition in the tech space probably won’t hurt either. Hartz launched and scaled Eventbrite and Xoom through their respective exits before working at Founders Fund and angel investing in corporations akin to Gusto, Pinterest and Reddit. Gupta was the former CFO of Uber and COO and CFO of Opendoor. As an investor in Coatue, Siegel backed Peloton, Instacart and DoorDash, among others.
The group had known each other for years before they began talking about launching a fund in late 2020. Now they need to use this latest fund to proceed finding and supporting great early-stage founders in a completely different market than the company originally launched in .
“The challenge of our times is that companies are not dying of starvation, but of indigestion,” Hartz said. “We can really help companies that are hungry for knowledge and want all this help to go from zero to one, where there’s a lot of capital.”