Should you give an anchor investor a stake in your fund’s management company?
- How VC and private equity funds can launch portfolio-acceleration platforms
- Does your VC have an investment thesis or a hypothesis?
Raising capital for a new fund is always hard. But should you give preferential economics or other benefits to a seed anchor investor who makes a material commitment to the fund?
These VCs for investment management companies" are also known as GP stake investors or fund platforms. According to DocSend, About half the VC firms in our survey had an anchor LP for their fund, and the average percentage that an anchor LP took in a first-time fund was 25%. The prevalence of anchor LPs among both early-stage and more established firms in our data suggests that securing an anchor investor can be crucial for signaling a firm's credibility to other potential LPs."
However, data about whether those anchors received preferential terms are very hard to obtain.
It ultimately may come down to timing.
In the hedge fund world, fund platforms are common and therefore more transparent," Ha Duong, the investment principal at Ocean Investment, a single-family office based in Berlin, told me. In venture, I haven't seen many fund platforms."
A number of firms provide infrastructure for emerging VCs, including Capria, Draper Venture Network, Oper8r and Recast Capital and may provide capital or assistance in raising capital.
However, this ecosystem is much more built out in the private equity and hedge fund spaces. Examples include Archean Capital Partners, Gatewood Capital Partners, Lafayette Square, Nesvold Capital Partners and Reservoir Capital Group. Certain family offices also make these investments on an ad-hoc basis. As do some VCs: LuneX.com notes it is a dedicated blockchain and cryptocurrency fund that partners with a Southeast Asia-based VC, Golden Gate Ventures.
A GP stake investor brings some significant advantages:
- Meaningful upfront initial capital, usually greatly shortening the lengthy fundraising process. This can be particularly helpful for founders who do not come from a wealthy background and may not be able to forgo an income for an 18-month fundraising period.
- Credibility. This is proportionate to the stake investor's credibility. Everyone else will assume the GP stake investor did extensive due diligence.
- Assistance in business development, marketing, risk management and governance.
- Ability to access LPs who require meaningful assets under management (AUM) before they'll consider you.
- Back office, in some cases.
There can also be meaningful disadvantages to working with a GP stake investor: