Podcast Transcript: Rob Go, NextView Ventures on 20VC w Harry Stebbings

23 June 2023 | Podcast Link

Rob Go is a co-founder and Partner at NextView, investors in Attentive, Devoted Health, Whoop etc. Before co-founding NextView, Rob was a VC at Spark Capital and a PM at ebay.

This is a terrific podcast giving you the inner mechanics and dynamics of raising a venture fund. It goes behind the scenes of what it is to raise a VC fund from LPs (Limited Partners, the cash providers, whose moneys the VCs invest). Some of the topics covered include what kind of documents to get ready, and what matters, your data room strategy, the single biggest driver of a VC investment, whether you should have anchor LPs, when to use Fund of Funds, LP psychology, whether concentration matters, setting expectations on timelines and sticking to it and so on. Such a lot of incredibly useful and nuanced behind the scenes info.

(Please find below, a transcript of the podcast, organised by me. The transcript has been lightly edited for readability. The podcast host doesn’t release transcripts. You are welcome!)

Origin story

Harry: Before we dive into the show, I’d love to start with some context and so tell me how did you make that first foray into the world of venture and come to found Nextview?

Rob: This is going to sound ridiculous. I got an adventure because I got a cold call from a VC firm when I was in business school and I got an email from a partner at Spark Capital because they were looking for someone with a digital media background and at the time everyone had a very narrow definition of whatever they were looking for. It was like a top business school, worked at E-Bay, Google and Yahoo and lived in the local market. So I went in for an interview and then proceeded to get tortured for six months before I finally got my offer. But that’s how I got into the business.

Harry: I love that. And then what was the founding story of Nextview? What was that? Aha! I can actually do this on my own with my own firm.

Rob: It was a lot of naivete. I saw the rise of seed funds that were starting to happen. Baseline, Harrison Metal & First Round Capital were starting to have these models where they’re investing specifically in seed stage companies. Most of the successful early stage funds were getting bigger and bigger and you saw the writing on the wall for some of those firms and I figured there’s going to be a seed stage specialised fund that’s not based in the Bay Area. I thought why not give it a shot? And so at the same time, my partners David and Lee, they were all thinking about the same thing. We decided somebody’s going to take advantage of this opportunity, may as well be us.

Venture learnings

Harry: You’ve now been in the industry for close to a decade, over a decade. I have to ask, what do you know now that you wish you’d known when you entered?

Rob: Venture is a young person’s sport. Going in we were very sensitive to the fact that we were inexperienced and we were young. We have this funny joke actually at NextView where every time we raise a new fund, we get backpacks for each other. And the reason was the first time we went into an LP pitch meeting, Lee and I showed up with backpacks because that’s how we used to travel and our partner David was like, dude, you can’t show up with backpacks. People already think we’re young and now we’re going to show up like school kids. Are you kidding me? And so we always remembered that and so after we closed our first fund, Lee got a gift for the two of us which were backpacks and since then that’s been the tradition, but I really believe venture is a young person’s game. The amount of energy and hustle that you’re able to deploy as a young person is truly a competitive advantage. There’s a lot to learn from people who’ve been in the industry for a long time, but you can actually get that kind of knowledge if you’re resourceful and what you can’t really replicate is the energy of youth.

Harry: A funny story, when I was raising my first fund, I was an restaurant in the US and they started serving wine and then they looked at me and said, do you have an id? And I said, I do but won’t pass your test because I’m 20. And then the endowment fund at the time was like, oh my god, he’s 20.

I want to start though. We’re going to demystify a lot of the fundraising process today. I want to start on you. What’s the fund size today and why did you decide that was the optimal size? Let’s start there.

NextView fund x-ray

Rob: Yeah, so we’re currently investing out of our fifth fund. In fact we have, we have a seed fund and we have a opportunity fund. The seed fund is 135 million, the opportunity fund to 65 million.

Harry: Why those sizes?

Rob: Our portfolio construction’s been pretty consistent since we started the firm. We make roughly 30 core investments per year. We reserve roughly half the fund for follow-ons and we have a sense for what the ideal average cheque size is for the stage that we invest in. And so today we try to write cheques between a million to $3 million and to pre-seed and seed rounds. If you kind of do that math and multiply that out, that leads you to about $130-140 million fund.

Harry: Okay, so you essentially have 30 x $2 million cheques, which takes you to $60 million initial, $60 million for subsequent and follow on financing and then you addressing fees and then the opportunity fund, talk to me about that being $65m.

Rob: That was a little bit less precise. We have a sense of how many investments we think we ought to have in that fund and that was actually with some guidance from our LPs in terms of the level of concentration that was appropriate. And then we thought through realistically what our allocation levels might be for the things that were coming down the pipe did some fuzzy math and landed at a number. We didn’t want something that was too big and the other thing that we thought about was the ratio between the seed fund and the opportunity fund because we stapled the two in our last fundraise, so all of our LPs were basically investing two to one from the seed fund to the opportunity fund and we thought that that was fair because folks got to know us primarily as a seed fund and so most of their money is in the seed fund, but we think we had access to these great opportunities downstream and so having a third of their capital into those investments made sense to us.

Reserves strategy

Harry: I have a couple of things and we’re friends so I can just kind of go off schedule, but you mentioned the reserves element. Now Rob, I hate reserves because I don’t think I’m that good a picker on trajectory. If I had picked on <incomprehensible>, I would’ve gone into a load of hyped companies bluntly they would not have been good and sustainable investments and so I actually prefer no reserves model. How do you think about bluntly picking sustainable winners, not hyped companies just because they’re faster to grow with trajectory?

Rob: I have a couple answers to this. One I think we have a similar perspective because we think that our most important investment is actually the first investment. That’s when we need to buy most of our ownership and when I think about reserves, we’re doing pre-seed and seed and in this market sometimes you’re taking a couple bites of the apple and so we want to make sure that we can support founders that we invest in really early with some additional capital to get them the series A. So there’s a piece of it that’s that. But for the most part we’re trying to buy our ownership upfront.

This isn’t really a strategy of let’s sprinkle some dollars in the beginning and pile in at the end that’s kind of one thought. We have a process internally in handling follow on financings. We basically do a ranking of the portfolio every quarter from a perspective of whether we want to deploy our follow on capital. We do that because we want to make the decision apart from a financing opportunity because what ends up happening is when some fancy firm comes in wants to lead a series B, you convince yourself that this is the best opportunity in the world. But then if you look back and say, well a quarter ago this was not necessarily a company that we were as bullish on, you got to make some really convincing argument why that makes sense. So, that’s one of the mechanisms we have been able to do.

Harry: And how do you determine between reserves versus opportunity fund in terms of where the dollars come from?

Rob: It’s a little bit of a stage mismatch. The seed fund goes pretty heavy in the seed, usually does pro-rata or a little bit less than a pro-rata in the series A and then kind of stops from there. The opportunity fund comes in at the B or C stage, so there’s almost this period where Nextview’s actually investing a little bit less than our capacity just to create a little bit of separation between the two funds. So, it’s not truly a barbell but it’s a little bit more like a barbell than if we raised one fund and just followed on at every stage.

Opportunity funds

Harry: I’m going to be a bit of a dick, I speak to a lot of LPs and they’re always like, oh, we hate opportunity funds. Did they hate opportunity funds with you too?

Rob: When we raised opportunity funds look, it was at a brief moment in time where the numbers were quite strong so there was a lot less pushback. I think that LPs also liked the idea that most of their dollars were going into the seed fund, not the opportunity fund. I think there are other firms where the balance was different, it was like two to one the other way LPs didn’t love that. The third is there’s an alternative which is we could just raise a bigger fund overall, but I think everybody kind of loses in that case, right? Because it’s harder to deploy that much money. The fees effectively are higher because our opportunity fund has somewhat discounted fees and so I see this as kind of a win-win for everybody who’s doing this.

Harry: If you think back to fund one, what was that size fund?

Rob: Fund one was a $21 million fund. Weirdly it was not that different, so still roughly 30 companies in the portfolio. Initial cheque sizes were lower but seed rounds at that time, a million dollars was a pretty big seed round and so we were writing $300-400k cheques and doing roughly 30 investments per fund and reserving some capital for the followings. So it kind of was the same.

Harry: I miss those days Rob. Weren’t those good? And you could buy 10% of a company in some cases for 500….

Rob: I mean ownership relative to fund size was quite nice and out of a $21 billion fund you didn’t need that much to move the needle.

Fundraising documentation

Harry: So, we’re going to go into the fundraising process today. A lot of unknowns that I think need to be addressed. If we think about chronologically speaking, we decide on this fund size that we’ve just touched on, now we need to do some docs. What docs did you prep for the raise and how would you advise on preparation in terms of documents?

Rob: Pick a really good law firm, they will help you set up the agreements with your partners, which I think is really, really important. This is sort of nothing to do with the LPs but is everything to do with how you run the fund and how the management company operates. But then going to the actual fundraising documents, we basically had a deck, a few spreadsheets that had our track record. I think we had a bunch of slides around case studies and that sort of thing, but for the most part we didn’t have that much documentation. It was mostly focused around our deck.

Harry: What do you advise founders going out today in terms of those materials that they have going up to raise from those first LPs?

Rob: Yeah, so what I’ve found is most LPs care about the deck & track record, the main two things. Everything else is just fodder for them to use as ammunition to sell into their investment committees. You think about what are the assets you have at your disposal. If you have a great media company that is powering the fund, you put tonnes of stuff about the media company and tonnes of stats about that. If you have other assets that are your disposal, put other things there that matter for that purpose. But really I think most LPs they spend like 90% of the time on the deck and the track record and that’s all there is.

Harry: I have to ask, you mentioned about the agreement between your partners, it’s a big sticking point for a lot of LPs. Do you have an equal partnership at Nextview?

Rob: We do have an equal partnership.

Harry: And tell me, is that across carry and salary? Sometimes you see differences there.

Rob: That is carries and salary and ownership and governance.

Harry: How important is that having that equal split?

Rob: For us, it has been really, really valuable and important. We’re very aligned in our life goals and our career and so it was kind of easy to be able to say, Hey, we’re in this together long term and we felt like if it wasn’t equal, there’d be too much of an incentive to renegotiate depending on how things are going in the fund. And thankfully my partners have this long-term view around the downfalls of not having equal partnership and we’re willing to structure it this way and I was very happy to do that.

Fundraising tactics

Harry: So, now we’ve got this kind of doc preparation stage, we’ve got the deck and we’ve got the track record & they look fantastic. Now it’s time to go out and raise. Rob, do we want to get an anchor first and then get more friendlies around them or do we want friendlies and then anchor? What’s that strategy?

Rob: I think both are viable strategies. We tried the first and ended up doing the second. So, typically an anchor is usually an institution, usually somebody who has some strong relationship with you who is willing to be the first yes, write a meaningful cheque and you can build the rest of the fund around them. That usually requires a pretty long process usually to get the anchor over the finish line, but then because that process was so robust, other institutions and folks who want to be a part of this, it makes it very easy for them to say yes.

The other approach, which is what we ended up doing was sort of a bottom stop strategy. It’s a little bit more of a lean startup of venture funds. You basically find the people who are willing to say yes and just trust you. You try to tally up as much as possible, preferably enough to do a minimum viable first close, close that capital get into business and allow yourself time to be able to cultivate the slower moving institutional LPs to come alongside you. Hopefully by the end of the first fund we ended up taking the second strategy.

Harry: Why did the first not work for you?

Rob: Because LPs said no.

Harry: Why did they say no?

Rob: So, we had a couple of LPs that showed very positive signs early on and we went down the process with them and I don’t exactly remember what happened. At some point they just got some pushback and started to get cold feet and we saw the Jenga towers start to crumble. It was easy to say no to us. We were new, we didn’t have that much of a track record. It was a time when folks said, well if you weren’t in Silicon Valley, why bother doing venture. Venture returns generally were really, really bad. So, it was easy to say no, they just got cold feet and we were back to the drawing board.

Harry: I’m super opinionated on this one. I think unless you have an anchor who’s like giving you money forcefully, go to your friends, use them for social validity, go for the big names and with every friend ask for three subsequent LP intros that they can make and put as a reference for themselves. Like, Hey, I’m investing in Rob’s fund. I love Rob, meet X, Y, and Z then you build the flywheel and actually as you said, when you get to minimum viable first close I find all LPs want is to know that you are actually in business. There’s no risk of it not happening.

Rob: That’s the strategy I would recommend.

For most folks that are raising early stage funds, I think there’s certain fund size where it’s just not practical for a first close. I have a friend who is raising a growth fund. It’s just tough to do a minimum viable close or you do your first close but you say, hey, we might end up doing a slightly different strategy because what if we only close at half or a third of our ultimate target? I think in those type of strategies you kind of need to have a meaningful anchor or some really big dollars behind you to be able to feel good about closing the capital.

Capital concentration

Harry: So, when you think about that anchor one, do you have to have an anchor two, can they be 50% of your fund? What do you think about concentration of capital to the anchor and are there different qualities of anchor?

Rob: I actually don’t mind concentration that much, especially for a small fund. You’re going to have concentration one way or the other.

Harry: What concentration is that 25% is that 50% that 10%?

Rob: Some funds don’t want an LP to be more than 10% or 15%. We’ve had situations where we’ve had more than 20% of the fund with one LP. I think 50% is kind of extreme. I think it’s probably unusual that an LP would be willing to do that without some special controls or economics that I would recommend probably steering away from, for the most part. If you have an LP that’s 20% of your fund, 25% of the fund, that’s not ideal, but hopefully by the time you get to your next fund you can start to dilute their influence.

Harry: We’re okay with concentration, probably do need one. Are there different qualities in terms of the types we’ve got, corporates, family offices, endowments, foundations? Is there a snootiness and exclusivity of anchor of LP?

Rob: I think there’s some LPs that are more influential than others, so if you have a really fancy endowment or foundation, that tends to be a stronger signal for other LPs that want to come alongside them and essentially outsource the due diligence or help them feel better that they’re not making a stupid mistake, but frankly I actually don’t care that much. You get the partners that you like. There was a time when folks used to say that endowments and foundations are the most robust long-term partners that exist on the planet. It is just not true. I’ve heard so many cases where markets turn things change and the first ones to leave are the endowments, so it’s hard to overthink it. What’s more important is the individual who’s there. You want somebody who is empowered, not at the very end of their career because there’s a risk that they’re going to leave and then you’re going to be adopted by somebody else, and  hence somebody who’s really committed to whatever it is you’re doing, whatever your strategy is, whatever segment of the market you’re in, and as long as that person is still around when you raise your next fund, I think you have a pretty good chance to get that firm back over the finish line and it doesn’t really matter what kind of institution they’re in as long as you have that kind of champion with internally.

Harry: So one, I totally agree with you, it is a nightmare when you have a champion and then you’re kind of the orphan child. Two totally agree in terms of not being as stable as you think with some of the biggest institutions. I would say it’s worth really being snooty though for subsequent LP acquisition. I find when you get the Harvard, MIT or Stanford instantly, it just gives so much credibility to other LPs for subsequent LP acquisition. It makes such a difference.

Rob: There’s also extra risk if they drop you. Things that really, really hurt, see, you better not lose them. We had a pretty influential institution drop us in our third fund. They did it the ninth hour. Most of the private equity team turned over and they just didn’t give us the attention needed to make that concrete decision early on. That was a pretty devastating event for us. It goes both ways. Luckily, all of our existing LPs had the wherewithal to stick with us, everybody else, some of which actually increased their allocation of the fund and we were able to get through it, but that experience is an important one in my mind because it made me realise that influence kind of goes both ways potentially.

Harry: How did you respond?

Rob: This was before our first close for that fund. We basically went back to all of our existing LPs who had committed and said, Hey, here’s what happened. The rationale I actually think made sense because that institution was so large and our fund was so small that it really didn’t make that much sense for them to be in funds like us unless they had a dedicated strategy and because they had turned over their leadership within the private equity and the CIO as well, they had just shifted the strategies. Thankfully, one of our other LPs that was going to be sort of a co-anchor in this fund was super rock steady and I think that gave other LPs a lot of confidence that they could move forward. Shout out to Michael Kim at Cendana for helping us navigate that and being a really great partner.

Harry: A lot of times the anchor says, Hey, we’ll do it, but we’d like to buy part of the GP or we’d like part of the carry, discount on fees. How do you think about concessions to get the anchor over the line?

Rob: I wouldn’t do it. I think it’s a sign of strength not to take that deal. It’s not very typical in venture and so if you’re talking to an LP that’s very used to anchoring hedge funds, they’re more likely to ask for this, but I think for the most part it is to your benefit to show some strength and say no to that and especially with our first fund, I remember every other LP asked, well, do any of the early folks in the first close have special economics, special governance and everyone is relieved when you say no. And so you think about the long game here, you really don’t want to get stuck with somebody who has extra power within your organisation unless you really believe they’re a long-term partner, but I think that’s very rarely the case and I think there’s a question of what did you do this for most people who start funds, many people came from funds or could be doing other things like the reason you did this probably is to have independence and control and do what you want to do and so once you have somebody who has additional governance, you kind of start to seed some of that.

We actually had a situation where shortly after our busted anchor situation, we had a couple billionaires whose name I won’t share, who basically said, we like what you’re doing. We were thinking about starting a fund too, why don’t we just merge? We’ll create our own firm. We’ll raise a couple hundred million bucks for you guys, we’ll just do it together. We had a couple conversations about this and it was very enticing. It was like get into business & these were very high profile entrepreneurs and investors. This was a time when a couple hundred million dollars early stage seed fund was unheard of. We were like, man, we can get into the game in a big way.

I remember my partner David was very decisive about this. He was like, if you guys want to do this, you should do it. I’m not going to be part of it because the reason I left my job to start a firm was because I wanted to do things my way with you guys and that matters a lot to me and if we take this offer, we are just going to be employees, don’t listen to anything they say or what they promise. We are going to be employees. I do not want that. That was a very decisive conversation and he really convinced us that we need to go on our own path.

Harry: When we reflect though on the meeting processes itself for form one, how many meetings did you have?

Rob: Must have been hundreds. We stopped counting,

Harry: You had hundreds. How did you get in touch with them? What was that entry point for that relationship?

Rob: Thankfully we had been in venture for a few years and so we had relationships with GPs at our firms and other firms who were willing to make introductions to us. What I found actually very useful though was not necessarily our closest relationships as much as other funds that were sort of like us that had raised recently and it was just amazing Harry, how generous people were in sharing their insights in the process, their lead list giving us background intel on everybody who they spoke to. I remember one person always sticks in my mind. There were a few but Bryce Roberts who was doing OATV at the time, I barely really knew him. I remember him sharing me his entire spreadsheet and talking me through every single LP and saying here’s how they think and I didn’t understand half the words he was saying and he just was so gracious and was able to explain to me what the situation was, how we should be thinking about it in our process and can’t think of enough for that generosity early on.

Harry: So, I’ve made many LP intros for Bryce. It’s funny you said that and the reason I do it actively for other early stage managers is because when you find a great manager, they’re going to raise with or without your help, you get brownie points for helping them and then you get brownie points from the LP for providing great leads. It’s like a net win-win to do it.

Rob: At the time I thought that folks would be very protective about LP relationships. You don’t realise that a lot of the market has this win-win perception. I got to tell you though, some firms don’t, I think it’s a little bit of a scarcity mindset and I would argue that this is a little bit of the function of the time. Part of why the Boston venture market at the time was not thriving the way the west coast market was, is there’s a little bit of a scarcity mindset here, a little bit more of a protective attitude towards everything, which frankly was part of why we wanted to start a fund. We wanted to buck that trend and I actually think that many of the funds that exist today don’t behave that way. There are certain ecosystems where I think that that is definitely the case.

Harry: When we think about those LP intros that we have, did you send them the deck, the track record beforehand? There’s often a question of whether before or after.

Rob: You could go either way. I actually don’t think it’s a bad thing to send the deck. It’s like people want the information, just give it to them. Sometimes we’ll send a pretty detailed blurb so that there is some enticing information, but we don’t have everything. I actually don’t mind that because I think part of your job is to qualify and to try to manage your time well and so having an obvious next step that is out there is kind of helpful for that qualification process, but I don’t know for the most part, I think sending a deck’s not the worst thing.

LP picking strategy

Harry: I agree with you. I prefer the more detailed blurb. I find that people find a reason to say no in the deck quite often ahead of time, but you mentioned qualification there. I do want to touch on that. I think there’s questions that managers can ask to qualify LPs early in the call or the meeting. What questions do you think managers can and should ask to better do LP qualification?

Rob: Yeah. This is something that I didn’t realise when we started the first fund. The number one factor in whether an LP says yes or no is just timing. Are they expanding their programme? Are they looking for whatever box or category they put you in? Do they have the bandwidth to be able to do it within the timeframe they’re trying to raise the fund? Those are the main factors and so you want to try to figure out what the answer is to those questions. So, LPs usually will share what percentage of their portfolio is private equity or venture. You want to get a sense for is that growing or shrinking? You want to get a sense of has this LP invested in something that looks like you and what is their general strategy around that category of product, right? Because within venture, presumably if you’re raising a first fund, you fit into some small bucket, so when we started it was institutional seed funds not in the Bay area, a few years ago it’d be crypto. Most LPs hopefully have some strategy of we want to have X number of managers that look like you. We’ve invested in two or three of them and so we have another four or five to go whatever the numbers are. Trying to get that feel is really valuable and whatever questions it takes to answer that I think is what you’re looking for.

Harry: I always ask about geography. I find if you are the first in the new geography, it’s probably very unlikely. I always ask that on cheque size, like you said there about the ones that are massive cheques, they write $25 million cheques and you’re raising a $30-40 million fund pretty much qualified out straight away and your cheque size geography, existing portfolio for them. What was the best ever LP meeting you had?

Rob: I’ll tell you the LP meetings I most enjoy are ones that focus a lot on the human beings, the nature of the team dynamic, the why behind what we do, the touchy-feely meetings. There is a class of LPs, I think a lot of folks who have this approach have a heritage at Yale, so I really enjoy those meetings.

Another meeting I remember was with Horsley Bridge. They’re not LPs in our fund, but I remember actually a follow up where we were talking about portfolio construction and one of the folks there said the best portfolio construction in the world is to invest in one company and put all your money into the first round and be right, and every derivative from that basically is allowing for uncertainty and risk and I always kind of remembered that I kind of enjoyed their probing, taking ideas to an extreme just to stretch your thinking because I felt like I learned something from that and obviously that’s not what anybody does, but I kind of appreciated that point of view and it changed the way that I sometimes think about portfolio construction myself.

Harry: What was the worst LP meeting you’ve had?

Rob: The worst LP meetings are just when it’s clear the person doesn’t want to be there. We actually very rarely have those meetings now, and for the most part it’s because we don’t fight that hard to get a meeting. In the beginning I was like, oh, I just need to get in the room and if we can get in the room, we can convince somebody that they want us. If somebody doesn’t want you, they don’t want you and I’m not that great of a salesperson, so it does mean it is no good to walk in to somebody who’s already leaning way back. Life’s too short. There’s other opportunities out there and so I would almost say you want to scrape and fight really hard to get great introductions, but if somebody doesn’t want to take a meeting, there’s not that much value in forcing it.

Harry: If we think about that post-meeting process though, we have that meeting, we have that call, what’s the right subsequent follow up? What do we send them? When do we send it? What do you advise there?

Rob: Mark Suster had a post years ago and one of the takeaways was to paraphrase, always leave something more, always leave something out so that there’s some reason to have a follow up. That’s sort of why a blurb is kind of nice because then it gives you the opportunity to follow up with the deck. So, with one of our fundraisers, for the first time we actually had a data room and we were so liberal about saying, well, here’s the data room, have a look. We have since changed that. We do have a data room, but the data room is a preliminary data room and it is intentionally incomplete and the reason it’s intentionally incomplete is if we offer the data room, I want to know they looked at it, which you can, a lot of times there’s tracking for these things, but then if they actually prosecuted it, it’ll be obvious there’s some other stuff that they would want to see and so we have a subsequent data room that we offer for folks who actually dig in and care to look at it. So, I like having these kind of gates that are out there just to assess whether or not LPs are serious and it’s sort of like a video game, let them go on quests and pass a level and move on to the next one.

LP psychology

Harry: I totally agree with you. So, let’s talk about the next level. You send them the deck, you send them the follow up something, the data room, they don’t respond. What do you do then?

Rob: I have a basic belief that it never hurts to ask twice, but I never ask three times. So, if there’s an email that doesn’t get responded to, I don’t feel bad about asking again after I’m ignored twice, that’s okay, I just move on. That doesn’t necessarily mean they’re dead, by the way, it’s just that I’m not going out of my way to proactively seek them out. But fundraising processes are long. You never know, you might see them at a conference in three months from now and they’ll be like, oh yeah, times have changed. Let’s have a follow up and that’s fine. They’re not dead to me. I’m just not going to proactively reach out anymore. So, that’s my general rule.

Harry: I remember there was one with my first fund….and they didn’t respond after a great first meeting every single monday for 50 weeks I emailed them.

Harry: 50 weeks, which shows they take took a year to raise a fucking fund and then on the 51st week they responded, sorry, been slammed, love to engage, and you were like, really?

Rob: And what’d you do with that?

Harry: And so we followed up and we’re like, we would love to engage too. Yes, please. We only sent 50 fucking emails to get this one, so I totally agree with you, but I think yeah, there is a certain time when you probably should stop.

Rob: It seems like you’ve had maybe a different experience where, because if you’ve sent 50 emails, that means for somebody else who sent 10 emails and it did work. So, do you actually think that the two email rule is not correct?

Harry: Oh yeah, a 100%. You are technically right, but the cost of it is so little. Just checking in one of our portfolio companies just raised a huge up round by Sequoia, it’s very low actually. The cost is low and the benefit is high, so fuck it, keep going. And I’m always more and more humorous with everyone, so I’m like, Rob, you probably think I’m as persistent as your wife or husband and I am, I’m worse. So, if you want to get rid of me, it’s much easier than divorce. Just let me know. And then they’re like, ha, ha ha. Great.

Rob: Actually, I really like that approach. The thing not to do is do you want to take a next step? Do you want to take a meeting asking for something without offering something? I think that is really hopeless.

Harry: Or the entitlement element, I think it’s really bad that you haven’t responded, blah, blah, blah. It’s not bad they haven’t responded, they just don’t like you in a lot of cases. And then the other thing I think is invest in lines not dots. So, I meet two new LPs every single week when I’m not fundraising, at the end of each meeting I ask for two new LP intros, they make them so I have a flywheel of four new LPs per week. I’m not fundraising, and then every quarter when I send out my quarterly update, I send it to them, Rob, I hope you and the family are, well, I hope Boston’s great this time of year. Personal copy, like personal bit at the beginning and then copy and paste with the, they love it, the lines not dots going to your <incomprehensible> comment and building that relationship over time works so well.

Rob: I agree with that. So, I would say when I say don’t ask twice, I would not be shy about sharing good news, but I certainly wouldn’t ask without offering something over and over again.

Harry: You’re not going to share bad news. Yeah, no, that would be too funny. Tell me that. The hard thing is just creating a sense of urgency even in ones that do respond. So, how do you advise managers on getting people over the line and what works and what doesn’t?

Rob: The tricky thing about this business is that most LPs have the incentive to the second to last yes. Because it’s not like you have that much benefit in being or any benefit in being the first yes to a fund. So, I have a couple thoughts here. I think for a first fund, there is no shame in closing a very small amount as long as your strategy can support it. I always remind people like <incomprehensible> first fund was a $7 million fund and they’re pretty well known folks in the industry, so I think there’s something about just do a close and then that allows you to have a very concrete timeline of what a final close looks like. Once you’re done and you’re in business, just do what you need to do and then you can create more urgency in your next fund when you have more demand and more points on the board. I also think that there’s some LPs that pride themselves in being in a first close, some fund of funds, some endowments, it’s meaningful to them that they’re known for being the first yes, and so you can basically use a close date as a forcing function. If clearly that’s not going to work, then at least they’re not really serious or at least they’re not serious within that timeframe. But I don’t know, what have you done, Harry?

Harry: Well, I think it’s really important on the timeline basis to set a timeline that’s not too short where it forces them to a no, but where it’s short enough where actually they need to do the work fast but they actually have time. So, I always say 14 to 21 days. Actually if someone’s going to do it 14 to 21 days gives you time to shit or get off the can as we say in the UK. I don’t think that’s arrogant, it’s not unreasonable a couple of weeks to internalise. They can say subsequently, Hey, that’s our decision and then we need to approve with IC, fine, but actually we need to have some form of declarative decision within 14 days because we do have allocations that are filling up. I think it also shows confidence and progression by doing that.

Rob: Yeah, I think that’s right. I think that as you get further along in the fund, it’s easier to be able to say, Hey, our last one is x size, the new fund is this size. Most of our LPs want to increase their allocation. We probably have room for one or two more LPs and we’re trying to be very selective about who that looks like. We think that we’d love to work with you, but here’s our timeline and try to figure out if they can meet that.

Harry: They should never be surprised by your timeline on subsequent funds. I’ve built the relationship with many LPs that I want in subsequent funds ahead of time, they know exactly when they’re coming. So, they are pre-sold to plan for that internally, I think that’s really important. You’ve got to think about their planning cycles and their deployment cycles. Otherwise if you’re like, Hey Rob, I’m raising, oh shit, I kind of did like you, but now we’re a little bit up shit creek.

Rob: Yeah, that’s a great point. So, typically if I think about our timing, if we’re looking to do a first close in say Q1 of a given year, we are probably giving pretty clear indication of where our timeframe is, at least 18 if not 24 months before that. And then we remind people, Hey, this is what we said, you probably don’t remember. Here it is again, some LPs are very good at keeping track of this kind of thing. Some folks tend to forget and so we just remind folks, and like you said, it’s not a surprise when the time comes that you’re looking to close at a certain time and I think LPs actually, even those who pay attention, they appreciate the consistency of how you’ve operated. So, knowing that you’re a fund that is delivering on exactly what they said they’re hitting the timeline that they projected to earlier is very reassuring because a lot of the existing managers don’t do that. So, when the markets were hot, what LPs always said was like, oh my gosh, so and so fund has come back a year or two years ahead of expected and it’s throwing off our entire planning strategy. There’s actually something comforting in knowing that you’re operating as predictably if not more predictably than their existing portfolio and you’re great to work with from that standpoint.

Harry: I think also going to your point now on kind of calendars, it’s really important to know that there are strategically better times of year to raise for certain institutions. A lot of endowment funds get fresh buckets of allocation in the start of any year, and so Q1 is actually optimal, Q3 is probably the worst and actually end of Q4 when they might have a spare little stipend left can actually be the best as well. But I think knowing that there’s strategic moments of best capital availability is important.

Rob: Yeah, I wonder if that’s going to change though because I feel like what you’ve described, I feel like maybe everybody’s figured out and so I noticed that everybody basically starts their fundraise at the latter half of the year so that they can target a beginning of the year close unless they catch somebody who has end of year allocation. That is the most logical timing to capture the large part of the market. But then I hear everybody’s doing that, so I don’t know if there’s a way to zig when others are zagging. Probably not. But yeah, that’s something that I’ve been thinking about actually.

Harry: I just have a problem with that though too because it just shows this strategic manipulation of relationships aligned to fundraisers and it’s like I’ve been speaking to 30 LPs who are not in my fund, honestly Rob, because they’re also really fricking smart and I learned from them on deployment side, so there’s no like, oh, I’m going to engage with them again with Q1 in mind. I’m kind of chatting to them on a weekly, quarterly basis on WhatsApp anyway, and I think that’s what managers need more of, which is just the natural relationships where it’s like, oh, meet my friend Rob, he’s raising now and he’s great, I’m not raising.

Rob: I think there’s some GPs who have the constitution of always fundraising. I feel like this is true for founders too. There’s some founders who are just so great at always having investor conversations and other founders that are just not good at that, right? And they’re better off running a concentrated process, simultaneous process in big bursts, and so I think to some degree that’s sort of the same for GPs too. Some folks are very, very good at keeping a lot of LP relationships and LP cultivation going, and I think some are just not as good at that.

LP cheque sizing

Harry: How much in terms of LP cheque size and a lot of people I meet have minimums and it really pisses me off. I think that they’re very dangerous. Some of my best LP instructions, founder instructions have come from $25k cheques from heads of product. How do you advise on minimum LP cheque sizes?

Rob: I would say for individuals, I’m usually pretty loose. For institutions, we try to enforce some sort of a minimum at the minimum, typically pretty low because like you said, sometimes you get great introductions from LPs. Sometimes it’s a model to start really small, but they can actually upsize quite considerably. We’ve certainly seen that in our portfolio. I try not to be too snooty about that. I generally am a believer in building an antifragile LP base. Even though I said earlier, I really don’t mind concentration. I also don’t mind a lot of small cheques if you can handle it from a timing standpoint, a bunch of small cheques is very, very anti-fragile, I am not too snooty about that sort of thing. As long as folks are good to deal with and they’re not a huge time sink, I’m happy to engage.

Harry: Can I ask you on different types of LP knowledge there? Did you find that one type of LP converted better for you for the others in terms of corporate fund to funds, you name it.

Rob: Different types of LPs convert better at different times in your lifecycle. So, Fund of Funds are in the business of one of two things. They’re either in the business of access, get whatever institution into these fancy names, and so they’re very focused on brand. The other job of a Fund of Funds sometimes is to execute on a particular strategy and get folks into something new, and so if you fit the category of the new thing in a new category, some Fund of Funds are really, really great at converting. Weirdly when you’re in the middle, you’re neither new, nor are you so well known that you have a great brand, Fund of Funds are not as good. What I found is that funds two to three, it’s actually harder to get a new Fund of Funds engaged because you’re neither of the two. There are some groups that are very, very large LPs and they just want stability. They will never invest in a fund one or a fund two, but they love the idea of investing in a fund, 3, 4, 5 or more with a team that’s been together for a long time that’s executed the same strategy for a long time, that just has shown that great level of stability and that’s what they want. I think pension funds tend to that. I think some endowments like that, and I think they tend to convert great towards the middle and later stages of the fund cycle.

Harry: Where would you say you are, you are fund five, but respectfully is not Sequoia of 40 years or so. Where are you in terms of that fund lifecycle would you say?

Rob: I would say that we are not the new product, but we have a lot of stability. We don’t have the biggest brand, but our track record is pretty strong. LPs that don’t care so much about the brand that like smaller managers and believe in early stage and kind of a no frills, less flash, but great performance kind of partner that they can trust for a long period of time tend to next wheel.

Harry: Who is the new thing?

Rob: Well, it was crypto. That’s not the case anymore. Probably if you’re an AI specific fund that can very credibly tell a differentiated story, that could be a new thing. Although it’s so crowded, perhaps not.

Getting to closure

Harry: Can I ask you, in terms of management of the process, how tightly should it be managed? I don’t find emerging managers managed them well at all bluntly, how tightly should it be managed?

Rob: I think you want to be organised, especially the first couple times you do this. I think you want to be very organised, but don’t try to manage it too tightly because you actually don’t know enough to be able to manage it like a fine oiled machine and you have to allow for some serendipity. I’m like a little zen about this kind of thing. I try to stick to my timelines. I try to be very transparent with our LPs. I always say that if you’re not for us this time, maybe next time, and who knows. When I started, I had so much urgency around, we need to hit this date, we need to close this amount by this amount of time trying to jam people into a framework and now I’m just much more laissez faire about it. We had one experience with one of our funds where we closed most of it, frankly, right before the lockdown happened with Covid and we were like, we’ve hit our target.

Should we just stop fundraising and just focus on investing? I was like, yes, but you never know what might happen. 9 months later, one LP that frankly is a relationship I cultivated since Fund 1 decided to come in at the very, very end. It was 100% about their own timing. Were they ready to say yes to us early on? No. Literally, it was like I sent an email and I think they either ignored me or they said no just by the email and then 9 months later they were ready because I chatted with them in Fund 1, they had the sense that they tracked us for a long, long time and they were ready to say yes to us, and so I was like, okay, great. This is going to work, so I’m much more relaxed.

Harry: What was the easiest fund to raise and what was the hardest fund to raise?

Rob: The last fund was the easiest to raise, so that was the 5th fund.

Harry: And that was just because of DPI and cashback?

Rob: Yeah, it was a DPI story.

Harry: Yeah, DPI story and then the hardest.

Rob: The hardest was the 1st fund because we didn’t know what we were doing.

Harry: Other than the first, which was the hardest?

Rob: Probably the 3rd fund.

Harry: Why do you think that is?

Rob: Because we lost an LP.

Harry: Can I ask a final one just to touch on the market? Is there anything you know about fundraising now that you wish you’d known at the start? I’m sure there are many things. But what do you wish most?

Rob: Like I said, I’ve become so much more zen about this in their 1st fund every time someone said no, I took it personally and I felt like it was a waste of time. Now looking back, it is amazing. Like this one LP that I mentioned, it’s actually our biggest LP now. This is the one that I talked to them about in fund 1, they didn’t actually engage very much, but they always took a meeting or two and then passed. And then I think fund 3 or fund 4, they didn’t even take a meeting and then fund 5 they came in. And I was like, how much of a waste of time was that? Not much. It was like a handful of meetings over the course of however many years, some email updates, and they’re great partners with us and they’re a pretty large LP for us, and if that has kind of changed my thinking where you just don’t know, people are in the business of meeting managers, you’re in the business of meeting LPs and you just don’t know how relationships are going to evolve. People are going to go to different platforms and at a new platform maybe you become a really great fit for them when they weren’t before. So, just allow serendipity to happen and do your job, and I feel like things will work out.

Harry: I think mine is just be human. We started this tool with me asking you advice on children and relationships and managing life. When you get on an LP call, you put on a shirt and tie and get the deck up ready, they’re just the same as you. Why didn’t you ask them those questions and actually build a real relationship?

Rob: Totally. That’s why you bring backpacks.

Harry: That’s why you bring backpacks. Maybe a couple of final ones before we do a quick fire. Now I have this theory, well, not theory, but many people have said on the show before that multi-stage funds have destroyed seed. They’ve turned the blood bath with 5 million on 25 million seed rounds. Do you agree and is seed harder than ever now?

Have multistage funds destroyed seed funds?

Rob: I think the degree of difficulty is relatively high. I don’t think that it will persist because at some point the multi-stage funds will say, Hey, it’s not really worth our time and effort to invest at this stage, and they’ll turn their attention to later stage rounds, you write bigger cheques again, but for now it’s pretty difficult. But there’ve been other times where it’s been difficult as well, and when we started Seed was a cottage industry it was a lot easier. Today it’s harder, but we didn’t get into this to do something easy.

Harry: Do you not think seed pricing is immune to macro cycles when you look at it? I think it will just continuously stay actually at very high levels because of all the multi-stage funds moving earlier.

Rob: I think it’s a bifurcated market. Prices are very high for certain types of companies, but if you’re a contrarian, there are a lot of companies that don’t get any love as well. I also think that part of the complaint is that seed funds are looking for what effectively used to be a series A investment and I say, why don’t you do a pre-seed? Because pre-seed are still pretty cheap, especially if it’s not a super proven founder. By the way, when we started we were doing seed rounds and there were cases where it was a very, very proven founder, they would skip the seed altogether and raise a series A. I feel like that’s kind of the same thing that’s happening today. It’s just the labels are different.

Harry: If you come out of a Figma, a Stripe, a Notion, you don’t raise the $500k to a million pre-seed round.

Rob: Yeah. You never know. I don’t know if that’s necessarily true.

Harry: Do you see them?

Rob: Yeah, we see them. I spoke to a founder yesterday who had been part of a company that had a very successful exit, then joined a unicorn company before it was unicorn led growth and he did a pre-seed and it was pretty reasonably priced. The seed will probably be pretty expensive, but the pre-seed wasn’t bad.

Harry: What do you see today in the seed market that you think not enough people are talking about or spending enough time on?

Rob: Related to your last question, I think there’s actually a lot of opportunity out there for non-consensus thinking. I think there are a lot of companies that aren’t getting very much love because they’re not AI, the teams aren’t fancy, founders not from well-known companies that are just having a really tough time raising and I think that there’s going to be many diamonds in the rough that come out of that. I think there’s a lot of doom and gloom and disgruntled chatter amongst seed investors right now and I’m like, there are a lot of companies out there go ahead and do it. And by the way, if the founders are really that great, just go ahead and pay a higher price. That’s okay too.

Harry: I’ve just put down a term sheet for a series A to lead it and I think the price was half what it would be last year, but I just think the capital supply is not there for an enterprise software company in London.

Rob: No, I saw that tweet, right? It’s like a good old fashioned enterprise software series A with good metrics that isn’t doing AI or not pretending to do AI. That’s great.

Harry: And everyone’s like, AI’s going to kill it. You’re like, really? It’s not. This is so ugly involved. Trust me. It is not that easy guys, listen,

Quickfire round

Harry: I want to do a quick fire round, Rob. So, I say a short statement. So, if you were to invest in one seed firm other than Nextview for what would it be and why?

Rob: It would be Indie VC, this is Bryce’s fund. They have a completely different model focused on a completely underserved different segment of the early stage market with a unique investment product that’s like different on four or five dimensions with a great guy and I can’t wait to invest in his fund.

Harry: He just is such a good person. I’m totally with you. If you were to invest in a Series A firm, who would it be and why?

Rob: It would be Benchmark, persistent success over time, successful generational transition, quite disciplined, amazing brand, great people. Hard to be.

Harry: If you were to invest in a growth firm, which would it be?

Rob: I would probably say Summit Partners. They’re the OG of the classic growth cold-calling machine. They invented that model, they execute it like nobody else. If I could, I would specifically invest in their smaller fund. They have a bunch of different funds. I think they have a small $400 – 500 million classic growth fund. That’s probably what I would do.

Harry: What have you changed your mind on in the last 12 months?

Rob: I was sceptical of AI. I am all in on it.

Harry: What caused the change?

Rob: I see something happening in AI that’s very similar to the early days of the internet. There are teams that I see that are clearly trying to become AI native and that doesn’t necessarily mean that you’re an ML researcher or have a PhD in the space. It’s just that you are approaching building every software product with an expectation that AI and AI driven tools can massively create efficiencies or to enable new capabilities. And there are other teams that are just like, ah, this is probably the next new fad. I don’t know I’m going to put it aside. This is very similar to the internet or cloud. There was a time when you would talk to a founder and you just knew, is this person like a internet native? Is this person just native to the types of products and tools that are out there and available to them or not? I kind of see the same dynamic happening and it’s not that every company we invest in be an AI company, but every team we invest in, I’d like them to be very, very AI native.

Harry: What’s your biggest miss and how did it change your mindset?

Rob: My biggest miss was DraftKings. I was actually Jason Robbins’s teaching assistant in college. I knew he was special. He walked into our offices to pitch DraftKings along with two other extraordinary co-founders. We passed not because of regulation, but because we misunderstood the market size. And ever since then I’ve been very careful to not say no to an investment just because of market size without thinking very deeply about whether or not we’re misunderstanding the market, misdefining it or just underestimating the growth that’s on the other end.

Harry: What’s the biggest hit and how did that change your mindset?

Rob: One of our biggest hits is Attentive and we invested in an uncapped note and that changed my mind because we never would’ve done it before. It’s not like we’re looking to do uncapped notes left & right, but it made me realise you just want to get into the best companies. In a power law business, you just want to get into the best companies.

Harry: What would you most like to change about the world of venture?

Rob: I don’t think venture is very one size fits all. Even though there are a lot of different managers, a lot of different funds, there’s just so much similarity in the ways that they approach it. That’s why I love what Bryce is doing with Indie, it’s completely different, there’s so many vectors. When I got into venture, I remember there was this very hard and fast rule about you have to own 20% as a venture fund. One of Union Square’s big innovations was they were willing to own 15%, and I remember people were poo-pooing them for owning 15%. Why is that wrong? There’s just so much one size fits all on the venture. I would love that to change around the types of people who get into it, the types of companies that can raise venture, the type of economics maybe that could allow different types of companies to work. I don’t know. I think in a lot of different ways we’re not thinking creatively enough.

Harry: Tell me next five years for you and for NextView, what does that look like when we chat in 2028?

Rob: My vision and our team’s vision is for NextView to be, Benchmark and YPO had a baby and focused on seed that’s what I’d love NextView to be. From the Benchmark side, it’s a very partner partner-driven model, equal partnership, a lot of stability, best-in-class investor, very concentrated model. YPO, an ethos of founder vulnerabilities, support, communal excellence. Folks are able to have lifelong relationships that they think is one of the most important things in their lives. I would love that to be what the founders say about being part of the NextView portfolio. So, if we can marry those two things, I would love that.

Harry: Rob, I’ve so enjoyed this. This has been such a great discussion. Thank you for putting up with my very vocal interview style this time around, but I’ve loved it, man.

Rob: Awesome. I really appreciate it. Thanks so much, Harry, for having me.