6 first-time fund managers detail how they’re preparing to thrive during the downturn

Until a few months ago, the venture market was on a historic bull run that lasted for the better part of a decade. Many new investors and funds entered the fray, but the last few years also saw a proliferation of new venture firms. That trend came to a peak in 2021, when 270 first-time funds raised a collective $16.8 billion, according to PitchBook data.

That means there are now nearly 300 firms in the U.S. alone that raised their debut fund in the bull market and are finding themselves operating in very different market conditions today.

Over the past few months, many established investors have been quick to speculate that many of these new funds will struggle as markets worsen, even if they can survive. But these legacy VCs are forgetting that the new entrants don’t have to think about an existing portfolio with dozens of startups before making each decision.

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What’s keeping these first-time fund managers up at night isn’t their chances of survival or if they’ll raise a second fund, but rather how to best manage their time and assets in a seemingly volatile market. “The biggest challenge has been around scaling my team’s time, particularly around managing a growing portfolio at a time when founder support is critical,” said Ariana Thacker, founder of Conscience VC.

Several such investors, like Rex Salisbury, founding partner of Cambrian, said the downturn is actually a good thing for new funds given their long-term goals: “The current macro environment is causing the most pain at the Series B and beyond. But the exit environment that matters to a fund like ours, which is investing very early, is more than seven years in the future,” he said. “So, price compression in the short term, which is just starting to trickle down to the early stages of the venture market, is, if anything, a tailwind.”

That’s not to say these VCs aren’t being cautious about what they’re willing to bet on. “Our process for assessing companies has not changed, but we have certainly recalibrated our compass on assessing the current, instead of the future projected value of the companies we are considering investing in,” said Giuseppe Stuto, co-founder and managing partner, 186 Ventures.

“It makes sense for us to be more thoughtful than we already were with regard to portfolio construction and make sure we are not over-levered in any one vintage or ‘company stage’ pricing, e.g., 2021, pre-product, pre-revenue,” he said.

So how are these first-time fund managers going to fare? TechCrunch+ asked six of them to find out how they’re preparing to tackle this volatile market, how this environment has changed their approach to investments and raising Fund II, the best way to pitch them and more.

We spoke with:

Giuseppe Stuto, co-founder and managing partner, 186 Ventures

How would you describe your fund’s thesis and structure?

We are a $37 million pre-seed and seed-stage fund focused on multiple industry groups — fintech, web3, enterprise SaaS, digital health and consumer-based innovations. Although we are geographically agnostic, we anticipate most of Fund I’s investments will be U.S. based (we have only one based internationally today in Nigeria).

Our strategy is that of a seed-stage generalist. That said, we consider our edge to be our ability to provide pragmatic “0 to 1” company growth know-how, given our founder/operator backgrounds and access to a network of industry leaders across multiple industries.

We have a traditional VC vehicle structure on a 10-year life cycle. The team today is composed of three full-time staff — myself (founder, investment team), Julian Fialkow (founder, investment team), and Sophie Panarese (platform and ops).

How are you preparing for the current, more conservative market conditions after raising a first-time fund in a bull market?

We like to think that we’ve been consistent in how we source and consider investment opportunities through both the bull market and the current market.

We started investing in September 2021, so we have a fair amount of bull market investing under our belt (about 10 of our 11 investments were completed during bull market times). We have two outstanding commitments, so we anticipate that by the end of August, we will have completed at least three investments after the bull market.

Our process for assessing companies has not changed, but we have certainly recalibrated our compass on assessing the current instead of the future projected value of the companies we are considering investing in.

Dorm Room Fund returns to campus with new $10.4 million fund

Dorm Room Fund, a venture capital operation that launched to invest in student-led startups, has raised a new $10.4 million fund, per SEC filings. The filing marks Dorm Room Fund’s largest fund to date, and its first that appears to include investors beyond First Round Capital, the firm that first launched the student-focused operation in 2012. The SEC filing indicates that the fundraise is still ongoing. Both firms declined to comment.

Dorm Room Fund’s original vision was tied to First Round Capital’s bet that early-stage investing could be led by students, for students. In 2012, First Round Capital thus allocated a portion of its assets under management — a  $3 million capital pool — to be managed by a group of students. Today, Dorm Room Fund continues to still only invest in companies where at least one person on the founding team is a student or recent graduate.

Dorm Room Fund has made 326 investments to date, in startups such as Brooklinen and Snackpass — as well as venture firm Harlem Capital Partners. On its website, the operation says it writes $40,000 SAFE notes into the startups it backs — and has teams in New York City, San Francisco, Boston and Philadelphia.

While the operation’s focus is largely in the United States, we have some signals its checkwriting focus may be broadening: Dorm Room Fund’s latest investment, per Crunchbase, was in a pre-seed round for Alima, a Mexico City-based company that wants to make product procurement easier for businesses.

For Dorm Room Fund, which had been noticeably quieter in its investment activity over the past few years, fresh capital could give a boost to its student-focused operations. As the larger investing world gets more competitive, investors are incentivized to find talent sooner and sooner — either through in-house accelerators, non-dilutive programming or, in this case, a carved out microfund explicitly for aspiring entrepreneurs.

The strategy may feel especially relevant today, but there is precedent. Similar to Dorm Room Fund, General Catalyst launched Rough Draft Ventures as a play to get more access to student networks. Contrary Capital, another student-focused venture capital firm, recently announced a $20 million fund — its second investment vehicle to date. In 2019, First Round made another move in favor of early talent: it supported the Graduate Fund, a pre-seed fund that targets recent graduates of undergraduate or master’s programs but that operates independently.

Dorm Room Fund appears to have been gearing up for a refresh of sorts. In 2018, the team launched a CRM for founders raising a seed round, but a year later the firm’s CEO Rei Wang left their post to launch The Grand, a learning and development platform to help people navigate change. That same year, the team hired Molly Fowler, who previously worked in politics and urban planning, to be the new chief executive. It also brought on Chauncey Hamilton as its inaugural COO, who was previously the chief of staff to First Round partner Rob Hayes. With new leadership, Dorm Room Fund has seemed to convince a cadre of LPs that its longtime focus deserves fresh capital.