How to raise a VC fund to establish an accelerator?

[Sandhya Sriram]

How to raise a VC fund to establish an accelerator, by a first time fund manager?
Who/what are the ventures to reach out to in Singapore/US/India?China?
How to setup an accelerator, by someone who has never done it before?

[Meng WONG]

well, how to start an accelerator … I'm sure there are many ways to do it and I can only answer from personal experience, so YMMV.

First you should be an experienced serial entrepreneur with both bootstrapped and VC fundraising experience under your belt personally. Ideally that experience should include a bunch of successful exits. One might say that to even get to this stage, you have to be a qualified and experienced operational engineer/manager with the hacker gene.

Second, you should have some experience investing in startups, either as an angel or professionally as part of a VC fund, in your chosen area of specialization – specific domain (bio vs fin vs green), depth (consumer tech vs deep tech), and industry model (b2b vs b2c).

Third, you should enjoy mentoring entrepreneurs and have taught innovation theory and practice. In addition to the usual corporate/competitive strategy they teach at MBA school, you should be intimately familiar with leading models of innovation including:

- Christensen on disruption

- Sarasvathy on effectuation

- Geoffrey Moore on the chasm

- Everett Rogers on diffiusion

- Sangeet Paul Choudary on platforms

- Wardley on mapping

- YC (Altman / Graham) on startups

To know if you enjoy teaching innovation, it helps to have connections at universities and at existing incubators / accelerators. I've guest lectured at INSEAD, NUS, NTU, SMU, Harvard Law School. Hugh used to run an innovation company in the UK that was responsible for getting a large number of tech and media startups funded.

Fourth, it helps to be part of the startup ecosystem. To get JFDI off the ground, Hugh and I ran half a dozen Startup Weekends around the region and organized hackathons etc. We've also participated in a number of government panels and committees. Those are useful for seeing how government funding agencies think about ecosystem development.

There are a number of books on startup ecosystems that I like – I particularly enjoyed

- http://www.therainforestbook.com/

- https://www.amazon.com/dp/B008UV826U/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1

If you talk about how well you fit this model (please post to the list, don't mail me directly) I may be able to offer more specific guidance.

good luck and cheers!

meng

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[Hugh Mason]

On Friday, 28 July 2017 15:49:10 UTC+8, Sandhya Sriram wrote:

How to raise a VC fund to establish an accelerator, by a first time fund manager?

It's probably best not to conflate a VC fund and an accelerator because they are quite different operationally and:

a) Regulators may require onerous compliance for anything that looks like a fund

b) Investors will expect a 2% management fee and 20% carry whereas accelerators are much more expensive to run as they have many more moving parts. 

You might want to read these questions on Quora on related themes to set investor expecations:
https://www.quora.com/What-is-the-avarage-ROI-or-a-multiple-of-an-accelerator-who-invests-in-startups

https://www.quora.com/How-long-does-it-take-startup-accelerators-to-make-a-return-on-their-investment

Who/what are the ventures to reach out to in Singapore/US/India?China?

In 2012 we reached out to local serial entrepreneurs, particularly focusing on folk who had recently exited their businesses (thank you, folk from Jobs Central and TenCube) because all the evidence is that a key to Silicon Valley's success is the swift recycling of risk capital WITH KNOW-HOW by active mentors. I capitalise that because in the long run the know-how is far more valuable than the cash, though it doesn't seem that way to most first-time founders at the time.

In 2013 we raised a second batch of money and this time included several family offices alongside high net worth individuals

In 2014 we further expanded our range of investors by drawing in institutional money alongside the family offices. 

 

How to setup an accelerator, by someone who has never done it before?

Maybe Meng and I should write a book on that.

In the meantime you might want to take a look at:
- The excellent research of Susan Cohen (Assistant Professor of Management at the University of Richmond) and Yael Hochburg (Ralph S. O'Connor Professor in Entrepreneurship (Finance); Head, Rice University Entrepreneurship Initiative)
- The dissertation I wrote describing what an accelerator is (and in particular following up the references section to read the sources): http://www.academia.edu/11662129/Guilds_for_Geeks_-_Describing_Business_Acceleration_using_Grounded_Theory_Methods

[drllau]

> first time fund manager? 

Surprisingly for an industry which is gung-ho over crypto-currency, investment management is highly conservative ... I hate to say it but the adjective "first time fund manager" immediately puts you in the bottom of the barrel as credibility is everything in the high risk private equity world. If you haven't served an apprenticeship elsewhere as fund associate or VC deal-sourcing, you're going to have an uphill battle. However, there are some possibilities for boot-strapping

a) angel syndicates ... become the lead angel (skin in game) to invest with close friends in private deals

b) look at the crowd-investing scene in Malaysia, Australia, NZ with the idea of forming a pooled unit-trust ... so long as you are licensed, do all the paperwork and have multiple references, you should be able to start up a private-equity 
c) write the software to simplify the deal-sourcing for private investors, asking for a simple carry (see new ASEAN cross-border investment rules) ... this reduces your personal risk especially if you are not sector specific in your knowledge-base

> Who/what are the ventures to reach out to Singapore/US/India?China?

if you don't know this already then how are you going to triage opportunities? And if you want to tackle China you are braver than most.

> How to setup an accelerator, by someone who has never done it before?

see first question on credibility ... the statistics are more scary that people realise ... My last notes indicates 0.3% VC deal closure ... so if you want to invest in 10 startups within 2-3 years (assuming 10 year exit timeframe) you have to evaluate 3500 pitches. The rule of thumb (read Kaufmann) is that one will be home-run, 2-3 return 2-3x capital and the rest duds or break-evens with a LOT of time management to handle the duds (assuming a non-passive board role). Private Equity is not for those faint of heart. Unless you have an advantage, eg exploiting domain-specific knowledge you are up against information assymetry, (founders know more than you), power-curve (the best deals go to a small subset), and lack of liquidity (10 year fund ... == a lot of Raman noodles).  

For comparison, lets look at Temasek Vertex Holdings ... Their aim is to be a leading global venture capital investment and fund management company.  I'm not in singapore recently so can someone update the news as my impression was their biggest paper profit was Grab. Nut look at their advantages:

- tap into top experts at NUS, and management from SMU, etc

- first 2 funds were govt money so can be almost an internal sovereign fund without the marketing heartaches

- global footprint (due to being sovereign fund)

- their directors are tied into major SG enterprises (airport, power, life sciences,) 

surprisingly for a public company, there's few details of their deals so I suppose the ROI can only be revealed when the funds close and a freedom of info filed. But if they follow global trends, achieving double digits would be highly respectable.

[drllau]

PS ... I recommend reading this book Zero to One to help in identifying prospective areas to punt risk capital.

[drllau]

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[Hugh Mason]

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