Tipping Point

Starting a Thematic Venture Fund

June 7, 2021

Ben Black, founder of Akkadian Ventures and co-founder of RAISE, speaks with John Spinale, founder and partner at JAZZ Ventures, about his experience funding endeavors on the fringe of possibility. John’s interest in where psychology meets technology led him to advocate for seemingly oddball companies — he and Ben dive into the nuances of the balancing act of thematic differentiation when raising funds in emerging fields. 


This interview has been lightly edited for length and clarity.

Ben: JAZZ Venture Partners has created one of the most impressive institutional platforms from a standing start to where you are today in venture capital. Tell us a bit about JAZZ and then go back to the earliest days about how you guys got started.

John: I was an operator for the previous 25 years of my career. I kept bumping into these investments that really didn’t fit into the regular mold of traditional VC, such as some in this interstitial area that fell between healthcare, life sciences, and tech. I always thought that the world didn’t need another generalist VC fund, yet at the same time, I saw that these investments didn’t have a natural home in the capital markets. I ran into a bunch of other people who were also looking at these same companies and thinking they needed to exist, but they were struggling to get funding. And so we said aha, I wonder if what it really takes is an interdisciplinary approach to be able to do these things and get people to collaborate from both sides. So, this moment of realization that the world did need a specialty firm in this space. The space at that time was basically applied neuroscience, which is where an understanding of the brain, the mind, human behavior, and psychology meets technology. And now that we’re bathed in technology 24/7, we’re measured and monitored, we can connect to the worldwide web, and essentially  have all information at our fingertips at all times. Well, that’s going to change human behavior and have a potentially positive impact on a bunch of different dimensions. We saw this moment, but seven years ago, it sounded a little crazy. But, we were able to find a bunch of like-minded LPs, who were more in the high net worth individual world, and they said, I think you’re right, maybe the brain is the next platform. That’s sort of what got the snowball going. So, we invested in a few of these oddball companies that didn’t really fit the mold of the time, but today, don’t really look so crazy after all.

Ben: Did you know your partners well before? How did you all come together?

John: We have an odd partnership in a really good way because we pulled together people that would never really be collaborating on the same platform. For instance, my partner Andy Firlik is a neurosurgeon turned venture capitalist, and he’s been investing in healthcare and med tech funds for much of his career. Another one was more in the medical device and invasive neurostimulation world. And then the fourth partner was a big market maker and actually was running a conference ecosystem in related areas. We realized that all of our skill sets were extremely complimentary, and we needed one another to be able to go do this. The four of us really fell in love as we were essentially angel investing and advising each of the same companies just viewed through a different lens.  And we realized this wasn’t just a handful of companies that we could help build, but this is the beginning of an industry. But, it definitely was a slog getting our first fund together.

Ben: How long did it take you and what did you do to get to your first close?

John: $120 million for our first fund, but it started off with $10 million, and we continued to do rolling closes as people agreed in the portfolio belt.  And fortunately, we didn’t have any massive transactions during the fundraising process, which took us well over a year to get to our full target. Initially, we were thinking a little smaller and didn’t necessarily know that this whole thing was really going to hold together. But again, the more we actually started making investments and the more the LP base got behind us, we realized, not only is there an industry and great companies, but there’s also an ecosystem forming around it. This meant there was going to be follow-on capital and people who actually understand what we’re doing, so we wouldn’t be out alone standing in the field by ourselves.

Ben: I remember from the original closes that you had some very fancy people that were thought leaders in the world pretty early on, who agreed with you. How did you find those people? How did you work with them and get to know them to the point where they would back your brand new team composed of four people that have never invested before and only one guy with a track record? 

John: I think we were fishing in the right pond. I’d say firstly, we had a lot of connections from our past lives, so we had an audience with many people. The first people that really bit on it were people that had family offices, usually out of the world of finance, many hedge fund managers, essentially those who had billions of AUM. They were able to invest in a thesis and a bunch of guys that seemed credible because if they were right, it was going to be good, and if they weren’t, those guys learned a lot for a couple million dollar tickets. What that enabled us to do was, plant a few stakes in the ground that then allowed us to actually show that this was going to be a real platform. That gave us enough runway to be able to do the dance with the larger institutions and ultimately end up with Temasek coming in and anchoring our fund one. 

Ben: Tell us about the experience with Temasek Life Science Ventures.

John: They are a phenomenal partner. They’re definitely very aligned with our mission. They have a tightly well-run ecosystem where they can actually materially invest in the future of Singapore. They saw what we’re doing and said, if it works, that’s a great investment thesis, and it’s going to be beneficial to our entire population here. We got to know those guys really well, saw the incredible alignment, and so they came on board.

Ben: You went pretty fast into fund two. Talk about the transition and how you spun fund two together: when you decided to do it, what had you done at that point, and how did you manage it?

John: We created a pretty concentrated portfolio for fund one with 12 investments; each of which we had a specific ownership percentage of.  As a basket, it looked really great on paper: our batting average was very high, but also the breakout potential for each company was still really good. A little over a two and a half year period, we built that portfolio, our operating plan, the infrastructure around the firm, and all this stuff that doesn’t get a lot of airtime, but is actually really important to be able to do what you do (such as tracking investments, connecting, and building out the relationship to the network). So, by the time we had a basket of 12 investments, each was looking really good, and we could be referenced as a team, instead of individual track records coming together. Additionally, we’d been planting seeds with larger institutional guys since the day we were born, and so by this point, we were three years into a conversation with pension plans and sovereign wealth funds, and finally were able to get more of them over the line. You could say fundraising, in some cases, took five years to do because that’s what planted the seeds for fund two, and then fund three.

Ben: One of the things I say to people is, if you’re going to do a thematic fund, you have to have a theme that sounds really exciting because a theme does a lot of the selling. The theme also has to be big enough for there to be a multi-decade opportunity. Can you talk a bit about some of those early ideas in fund one that inspired the institutional LPs to take a bet on you guys?

John: It’s really a double-edged sword because everyone in the LP community says they want something that’s differentiated, and so we bring them something that’s differentiated, and then they go, wow, that’s really different. Not fitting the mold can get you attention, but it also can get you rounded out pretty quickly. So, it’s about hitting that right balance, where it’s still something that I can understand, even though it’s different enough to get me in the door. Then, you have to have credibility. Is this a space that people are going to be really excited about? Is it going to be, like you said, big and persistent for a long time, or is it just a little niche? We had that argument with people over and over again. In our case, it’s the question of if applied neuroscience meets technology will be tiny, or is it going to be massive? And we would argue that it’s massive because where humanity crosses technology is a pretty big market opportunity. However, whenever LPs hear something that’s not in the silos they typically invest in, they put it in their head as a niche. Then, you have to spend time explaining why this “niche” is actually a massive opportunity. So, it is a double-edged sword; but I think it’s essential to get in the door and actually get your airtime with LPs. 

Ben: So where’s JAZZ today?

John: Our first fund was a pretty concentrated portfolio that enabled us to get our second fund going, which is a little more diverse. We got to tune up the parameters of which we really wanted to optimize for return: a slightly more diversified portfolio, more investments, deeper ownership percentages, fewer board seats, and a little more of a spread in terms of our ability to do a couple of seed deals and a couple of later stage deals and really barbell it so that the returns profiles aren’t quite as lumpy or deferred. That enabled us to then build a really phenomenal basket of companies in fund two, with deal flow and the credibility that we built up in the first one.

Ben: So looking back, you guys executed about as well as any firm I’ve ever seen. What percentage of your time as a group do you think you spent fundraising versus investing in those first few years?

John: I bet you it was 50/50, if not more on the fundraising side of things. Percentage wise, it was a lot because we were selling a new story into a new LP base with a new group of people who hadn’t worked together as a team before. And so, it was a lot of time, but I think it was time well spent in all honesty because the seeds that we planted and the relationships we developed, came back around in fund two and fund three. I thought at the time, it was highly inefficient and not terribly productive, but now in hindsight, it was time incredibly well spent to be able to dedicate to firm development, fund development, and LP relationship building.

Ben: So tell me, if somebody were starting today and wanted to create a new VC fund, what advice would you give them?

John: Firstly, we were blessed by having a really differentiated product in a space that was taking off, in addition to a partnership that really added up on paper. And I'd say, at whatever scale, that is the recipe that works to this day. You have to have something that genuinely stands out in terms of an investment thesis, whether that’s in geography, a space, or a pool of entrepreneurs that you have unique access to. And then, you have to find some way to actually show that your operating skills and the networks you built matter in the field that you’re doing. In addition, you have to prove you can actually be an investor and take off the operating hat and think about this business as its own unique thing. When we were going through a lot of the dances with LPs in the scrubs and the grind, both of those sides were equally well tested. I think those were all really great hurdles we had to go through that made us better at what we do. Overall, figuring out how to stand out from the crowd is number one.

Watch the whole interview with John. And request an invitation to RAISE Global Summit 2021.

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Disclaimer:

The Tipping Point Series (“Tipping Point”) is a collection of interviews with fund managers who (a) have previously raised a venture capital fund and (b) are providing advice and insights into the formation and management of venture capital funds (the “Presentations”).  Tipping Point is not an offer to sell or a solicitation of an offer to buy any security issued by any venture capital fund, including without limitation, any venture capital fund managed by Tipping Point’s speakers, presenters, or producers. 

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Tipping Point is produced by Raise Conferences, LLC (“Raise”).  Raise is a private invite-only venture capital conference, which provides a forum for venture capital funds to network with and present to potential venture capital investors.  Although Raise produces Tipping Point, the Presentations are independent of Raise’s conference and do not provide any forum for the Tipping Point speakers, presenters, or producers to solicit the sale of any securities. 

Ben Black
Ben Black is a Co-Founder and Managing Director of Akkadian Ventures and a 20-year private equity veteran. He is also the Founder of RAISE Global.

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