We haven’t yet closed our first fund but have decided to put the M8 Ventures partnership into sleep mode until there is more certainty in the economy.
It’s time to let you know how we’re responding to the pandemic crisis.
Scott Galloway of NYU’s Stern school says the three pillars of crisis leadership are:
- Top gal/guy takes responsibility;
- Acknowledge the issue; and
M8 Ventures is an equal partnership but I was working on it a little while before Emily Rich joined me, so I’ll be ‘top guy’ in this instance and lay out what’s going on for the fund, and explain how we’re going to overcorrect.
The top guy takes responsibility
We’re putting M8 Ventures into sleep mode, pausing our plans for the fund. We’ll plug it in, keep it charged up, and come back after the pandemic has passed if we’re still in a position to do so.
Acknowledge the issue
The biggest issue right now is the pandemic cutting the guts out of not just the tech startup industry but the global economy.
With countries under lockdown, infections and fatalities still rising rapidly, governments doing decades’ worth of damage to their national debt, and what may be the biggest jump in unemployment ever recorded, there’s too much uncertainty in the market to believe we can make any progress on raising this fund, at least while the level of economic uncertainty accelerates.
We can’t ask potential investors to invest in a seed-stage venture fund right now when we wouldn’t consider doing so ourselves. In fact, I’m increasingly focused on how I’m going to make ends meet for my family beyond the end of this year. Not losing my shit, but definitely making sure I have a Plan B and a Plan C.
We’ve done a bad job of reporting on our progress towards achieving our goal of an AUD10M ESVCLP but the short version is: we still have a way to go.
We could continue to limp along, and maybe we’d find a few people bold enough to sign up, but there are no penalties for overcorrecting in this environment, so we’ve told our current investors to forget about it for now.
That means, for startups hoping we’d be investing in their seed rounds, we’re sorry, but now is not the time and we can’t speculate as to when the time will be. Here’s a blog post and another blog post I wrote, with some advice on what you should be doing instead.
What changes when we come out of the pandemic?
Solving the outsider problem
We think our first problem is, while we have a good rep in startup founder and tech angel investor circles, neither Emily nor I are well known among the broader high net worth and family office community. This is reflected in the makeup of the potential LPs: of the pre-commitments we’ve received so far, there is only one high net worth from outside the tech industry and one family office manager.
We want to make this our strength (“an early-stage venture fund run by a couple of early-stage product and tech founders!”) and it’s been received well by angel investors with a founder background, but there just aren’t enough of those in Australia and NZ. At the end of the day, we both grew up in the wrong neighbourhood, went to the wrong school, got the wrong degree and followed the wrong career path for high net worth individual and family offices to know us.
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So to address this we’ve agreed in principle to work with a very promising business development individual from the right kind of background, to help us raise the rest of the fund. This person will be compensated on a success basis, with the ability to earn some partner carry if they really knock it out of the park.
If we make it through the next few months in good shape, we look forward to formalising that relationship and introducing them to you. We couldn’t be happier with the culture fit, the ambition and the intelligence of the person in question.
Solving the first-timer problem
The other challenge we have is that we’re first-time fund managers. We thought potential LPs would look at the success of the previous vintage of first-time tech venture fund managers and decide to put some money into the next vintage.
Instead, we’ve seen many of those investors decide to write bigger cheques into the subsequent funds raised by that previous vintage, prepared to accept a likely lower rate of return but with the perceived lower risk that comes with backing an established fund manager.
We need to be part of a full-stack fund management team, running seed and growth stage funds, in order to be considered by those investors.
So another agreement we’ve made in principle is to hitch our little toy wagon of a seed-stage fund to a veritable Cybertruck of a later-stage tech fund, to be managed by a well-known identity in venture capital.
It’s difficult to contain our excitement about revealing the identity of this person. They exhibit all the intelligence, authenticity, commitment, and sheer love for the work that we aspire to show you as fund managers. We have to pinch ourselves when we think of working alongside this person.
If we make it through the next few months in good shape, we look forward to formalising that relationship and introducing them to you as well.
You’ve already received a bunch of emails about how to take care of your business interests and the health and wellbeing of your loved ones during the pandemic, so I won’t waste your time with more, except to say that I recommend you don’t try anything foolish — don’t try to pick the bottom of the market, don’t subscribe to the best-case scenarios. If I were you, I would overcorrect.
Follow the news, wash your fucking hands, stay locked-down, and cut yourself a break now and again.
Thanks to everyone who’s helped us during the first chapter of the M8 Ventures story. I hope you make it through the pandemic healthier and stronger than you were going in. If you want to talk about this, or anything else, hit us up at @bigyahu and @emilylrich.
This article was first published on Medium and is shared with permission.