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Dynamics of New Funds

New funds tend to demonstrate investing behaviours that stand out from the broader pool of venture investors in many ways:
1

Appetite to Deploy

In the earliest stages of the lifecycle, new funds tend to have a strong appetite to deploy capital. This varies significantly from one fund to another, depending on the investing strategy and overall approach of the partners. At a macro level, however, empirical data suggests that new funds invest most actively in the first few years.
2

Limited Deal Flow

New funds typically get deal flow through the direct and extended networks of the investing partners. In the absence of a strong and existing brand presence in the venture community, new funds typically have limited deal flow and are generally easier to organise initial calls with.
3

Finding Proof Points

In the first few months/years of a new fund’s lifecycle, partners are actively seeking out investments that get initial traction in capital markets. This makes new funds a bit more focused on and curious about new companies than established VCs, which tend to rely on a process that has worked well for them over the years.
4

Limited Investing History

Unlike established VCs, new funds do not have a detailed investing history, and it often takes a bit of effort and manual research to identify their focus. It is not as easy to discern what new funds are looking for, or what stage / sector would be most interesting to them.
At pre-seed and seed stages, especially for filling up existing rounds, founders should prioritise new venture funds that meet the following criteria:
  • Sector Focus: Most new funds talk about their sector focus on their website, or in their fund announcement press coverage. Founders should focus on funds that have a clear focus on their sector or operating space.
  • Stage Focus: A lot of new funds are small in size, focusing on pre-seed and early seed. Others are large in size, focusing on Series A or subsequent rounds. Founders need to do the research required to understand the fund’s focus in terms of stage.
In brief, each new fund is unique, and founders need to make the effort to research a new player before pursuing a conversation. Most new funds tend to be best-suited for participation in existing rounds as follow-on investors.