It is a new era, and venture capital is at a crossroads. The old way of doing business is being challenged, and no more so than on the investing and fundraising sides. Over the next five years, the entire industry will be transformed, and everyone in the ecosystem will be affected. Some will lead, some will follow and some will fall by the wayside.
Funding platforms and tools such as AngelList and syndicates are clearly changing how entrepreneurs are raising capital. But what about venture capital firms, and why have smaller firms found it so challenging to raise capital? While it may be true that some can be unproven, have little or no track record, and often have little infrastructure, we believe that the biggest reason has been, until now, the age-old SEC ban on general solicitation. The ban has long hindered funds and firms from letting anyone know that they are raising capital, and from sharing their historical performance, infrastructure, and capabilities. As a result, capital has flowed to players with brand and ego, based on tales around pretty much anything other than return on capital (or even return of capital).
We believe that this must change. Someone has to be willing to be the first firm to step forward and be willing to share performance data, publicly announce that they are open to new investors (albeit only accredited investors) and share their story.
Today, we are taking that step: We are pleased to announce that ff Venture Capital is the first institutional venture capital firm to embrace the JOBS Act's lift of the ban on general solicitation and publicly announce that we are raising capital for our third fund, ff Rose Venture Capital Fund.
Why we’re pioneering a new frontier for venture capital:
Transparency: The process of venture fundraising is hugely antiquated and has been stuck in the 17th century. Our team at ff Venture Capital is proud to bring much-needed transparency into an opaque process that has been dominated by closed "friends of friends" networks. With this move, we will leverage 21st century communications technologies to share with the world our story and mission. Providing this newfound transparency will be pivotal in attracting more investors to the cutting-edge technologies in which we invest that are shaping our world, at a time when just 5% of accredited investors in the United States are investing in startups and/or venture capital firms.
Creativity: Being the first at something is always exciting, daunting, and frankly, a little scary. There are always unintended consequences. However, we believe it is instrumental for us to be at the forefront of this regulatory change. After all, we invest in disruptive, game-changing companies, and firmly believe that every industry has the capability to be disrupted. Thus, it only makes sense that our own industry (venture capital and financial services as a whole) is getting disrupted as well. We wholeheartedly support the reinvention that comes along with it. We look forward to providing guidance and best practices to early-stage venture capital firms and entrepreneurs raising capital, who decide to embark on the journey of making their fundraising process more transparent.
Passion: Our fundamental mission at ff Venture Capital is to enable visionaries and champion entrepreneurs who are changing the way millions of people behave. We also believe that the initial checks that investors write are truly vital to innovation. Being able to tell the world about our mission is beneficial for the companies we support, and advances job creation, entrepreneurship and American global competitiveness.
Results: Individual angels and smaller VC firms write the first checks for entrepreneurs and earn the highest returns. However, these small funds spend far too much time raising capital. Bigger, later stage firms can invest large amounts of capital into companies once the companies have proven their business models, but these firms end up with far worse returns. Especially because of this, it is unbelievable that 48% of the capital that the VC industry attracted in 2012 went to just 10 large venture firms, in spite of the fact that no VC fund larger than $1 billion returned more than twice its invested capital after fees, according to the Kauffman Foundation.
Our Results: We generate returns, whether it’s viewed from a one, three, five or ten year basis. We have consistently generated a gross IRR on invested capital in excess of 30%, in a world where the average ten-year returns for venture capital firms is in the single digits.
It is a fascinating time for venture capital and angel investing. We may be in a low-growth world, but we are extremely fortunate to finance the growth side of the creative destruction we are witnessing all around us. Most importantly, we look forward to continuing to fulfill our mission of championing entrepreneurs and game-changers for years to come.
ff Rose will close to new investors before the end of November. So, now, I can legally say that if you are an accredited investor and are intrigued to find out more, we invite you to connect with us at firstname.lastname@example.org.
Please see ffvc.com/invest for more details.