Tipping Point

Why Differentiation Matters When Raising a Venture Fund

June 7, 2021

Ben Black, founder of Akkadian Ventures and co-founder of RAISE, recently spoke with Shelley Zhuang, founder and managing partner of 11.2 Capital, an early-stage fund investing in breakthrough technology startups in enterprise technologies, smart hardware, and health. Shelley shares her wisdom about how to fundraise and create a narrative to get to the tipping point of having institutional investors. 


This interview has been lightly edited for length and clarity.

Ben: Can you start by sharing a bit of your background and your history of how you started your firm?
Shelley: I’m a computer scientist by training. I did my PhD at UC Berkeley, and I turned to VC because I didn’t want to become a professor. I started out as an analyst at DFJ and was there for about six years, where I really learned a lot. Then I started 11.2 Capital in 2014 and focused on emerging and deep technology startups, and founders. 

Ben: What made you decide, I’m not going to join another fund, I’m going to start this thing on my own?
Shelley: I think back then, there were very few seed funds focused on the deep technology niche. Even today, there are very few funds focused on this niche. I wanted to start a fund to focus on that type of entrepreneurs — companies that have a core IP and technology behind them. So that’s what we set out to do, and it’s been great. Being able to partner with a lot of very technical founders and be a part of their journey to help them turn their technology into products and commercialize them has been a lot of fun. 

Ben: So when you started in 2014 did you start with investors, or how did you find your original group? If so, where did you find your investors? How did that first year go for you? 
Shelley: I was a complete newbie when it came to fundraising. So I only really approached individuals to get started and those were individuals that were mostly ex-entrepreneurs or current entrepreneurs who I met through DFJ. They then also introduced me to some of their friends, creating a good foundational network. Fund one was mostly high net worth individuals who were entrepreneurs themselves and wanted to stay current with the latest in the tech world. 

Ben: What was your first close in the first fund? How many investors did you have in your first fund? How long did it take you to raise the funds before you finally closed? 
Shelley: The first close was $13 million, and we had around 40 LPs. We then were able to have five different closings over the following 18 months. This was because, when pitching to individuals, they tend to make decisions fairly quickly. So I probably spent just a few weeks on each close. Comparing that to our round-two raise, I’m actually spending more time on fundraising because we’re making it more institutional this time around. 

Ben: What have you learned about fundraising? How’s it all gone for you?
Shelley: I’m not going to say it’s easy because I think it takes time for most GPs to raise funds, especially from institutional LPs. They tend to want to see development in your portfolio, team development, and overall, require more than an individual investor. 

I’ve really learned a lot through the process. I’ve encountered different types of LPs, not just individuals, and expanded that to family offices, fund of funds, endowments, foundations, and so on. We’ve also honed in on our pitch as well: what’s really differentiating about our fund, what’s our mission, and how do we tell the story. I think all of that takes time to learn how to do, so fundraising definitely is a skill set that I developed over time.

Ben: If you had to go back to 2014 and tell yourself something that you’ve now learned and that you would do differently to start to fund today, what would you say to yourself? 
Shelley: Putting together the story — which the most recent RAISE conference actually helped with. Getting the shortened version of the story right, by distilling and differentiating the fund with only a couple of key points, just like how we look at startups. Also, finding the right investors.

So, over time, we developed our ability to identify the ideal target persona and what types of LPs are best suited for us at this stage of our firm. Another lesson I wish I had known earlier was to start conversations with institutional LPs while I was investing out of fund one, which, unfortunately, I didn’t do. 

Ben: Working with high net worth individuals is very different from working with institutions. What did you have to do to institutionalize your funds to make it ready and to cross that chasm from high net worth individuals to the institutional investor? 
Shelley: Part of it is preparing the fundraising materials. We had a very comprehensive data room and some of our GP friends were very helpful in getting us started. They showed us what was needed for pitching to institutional LPs. Additionally, getting feedback from LPs, and what they would want to see was very useful in making the switch.

One example: I met an LP through RAISE who gave me really good feedback that our LP reports needed to be revamped and upgraded. Generally, we had to make it all more professional for the institutional level. 

Ben: How did you get into a bigger pool of investors that you didn’t personally know? 
Shelley: A lot of it in the beginning was introductions through GPs we have co-invested with or have a strong relationship with. Eventually, we also got introductions through other LPs, who, even if they did not invest, liked our story enough to pass it on. 

Ben: Talk to me about the rest of the team. Is it just you who is doing all the fundraising, or do you have a partner that’s helping you on the fundraising side?
Shelley: I definitely get help from my colleague Jake. He’s been super useful in aiding the preparation of the materials for the data room that needs to be updated every quarter or for an event. But, I do take all the first meetings as of now.

Ben: What do you think about the importance of team? 
Shelley: I do think it’s important for some LPs. I remember certain LPs actually would not back single GPs, but it really depends on the LP. This goes back to what I said earlier about how one of the key things you need to figure out, is finding LPs who are on board with your thesis and your team. 

Ben: Do you have a formal process of keeping in touch with people, and keeping the conversation going with LPs?
Shelley: We use a CRM software to track LPs. However, I want to improve on maintaining a more consistent and ongoing communication with LPs who passed due to timing or wanting to see more development. Because, unlike deals where we generally don’t invest again after we pass, LPs actually do invest after they pass the first time around. 

Watch the whole interview with Shelley. 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. 

The Presentations do not (a) provide investment advice with respect to any security or (b) make any claim as to the past, current, or future performance of any security or venture capital fund, and Tipping Point expressly disclaims the use of the Presentations for such purposes.  The Presentations are not intended to constitute legal, tax, accounting, or other advice or an investment recommendation. Prospective fund managers should consult their own advisors about such matters with regard to their venture capital funds.  Raising a venture capital fund involves significant risk of loss of income and capital, including loss of the full amount raised and invested, which may occur as a result of identified or unidentified risks.

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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