Cendana has raised a $30 million ‘fund of funds’ for VCs managing $15 million or less – TechCrunch

Cendana Capital, a San Francisco-based fund of funds supervisor, has amassed stakes in additional than 100 enterprise companies since launching in 2010. For probably the most half, it did this by specializing in managers who’re elevating funds of $100 million or less in capital, even foregoing stakes in beloved outfits like Forerunner Ventures and Uncork Capital as their belongings below administration ballooned nicely past that quantity.

Yet because the market modified, nevertheless, Cendana founder Michael Kim started to play with that formulation. Last spring, for instance, when he closed on $278 million in new capital commitments, he stated deliberate to spend money on the seed-stage managers he has at all times backed, however that he deliberate to funnel a small quantity of capital to pre-seed managers elevating $50 million or less, in addition to to spend money on a sprinkling of worldwide managers.

Now Kim is again with a brand-new fund that sees him overlaying much more floor. Called Cendana’s Nano fund, it has raised $30 million in capital from current Cendana backers to spend money on as much as 12 funding managers who’re piecing collectively funds of $15 million or less capital. There are too many good individuals proper now making smaller bets for Cendana to not make the transfer, he suggests. We talked with Kim in regards to the fund — and the altering panorama extra broadly — in a chat has been edited flippantly for size.

TC: What’s the thesis behind this Nano fund?

MK: The seed market has developed a lot during the last 18 months to 24 months. You have this complete world of Twitter VC, that means individuals who have a lot of robust opinions and an operator-investor perspective, however who could not have substantial funds behind them. You have solo capitalists like Lachy Groom and Josh Buckley, who’ve gone out and raised a whole lot of thousands and thousands of {dollars}. You even have the AngelList rolling funds. I believe there are in all probability greater than 100 rolling funds on the market, and possibly 95% of them are [headed by] people who find themselves working on the massive tech or personal tech corporations, and it’s extra of a automobile of comfort for their associates to speculate alongside them.

TC: And you assume they want extra capital than is floating on the market already?

MK: I believe we’re the one institutional LP that’s targeted at this stage, as a result of as you realize, many of the funds of funds and college endowments and household workplaces have to put in writing massive checks, in order that they’re not going to be investing a little bit into a tiny $10 million fund.

TC: What are you wanting for precisely?

MK: The objective is to seek out the subsequent Lowercase Capital. Not everybody is aware of this, however Chris Sacca’s first fund was $8 million and it returned 250x. Manu Kumar of K9 Ventures — his first fund was $6.25 million and returned 53x. So you’ll be able to generate substantial alpha with these smaller funds.

Historically, we’d meet with fund managers, and after they stated, ‘We’re going to lift a $10 million to $15 million fund,’ we have been like,’Okay, sounds attention-grabbing. Let’s discuss once you’re elevating your second fund.’ But we realized that we’re lacking out a complete phase of the market. So Nano was created to seize that.

TC: Why draw a line within the sand at $15 million?

MK: First, for those who’re going to be working a $100 million seed fund, it’s important to be writing $1.5 million to $2 million checks, and that’s a tremendous aggressive area proper now, as a result of not solely are there different seed funds but additionally a lot of companies — Founders Fund, Sequoia Capital, Lightspeed, General Catalyst — which can be very energetic on the seed stage. We’re coming throughout a lot of these managers who need to keep small, as a result of by writing $300,000 to $400,000, they’re not competing towards Sequoia or Forerunner Ventures; they’re simply sliding into the spherical.

TC: Do you are worried they are going to simply get washed out of that funding later by way of subsequent checks from greater gamers?

MK: Right now, we now have greater than 100 portfolio funds inside Cendana, and we did some information evaluation. We appeared on the fund measurement, after which the typical possession of every fund. And it turns on the market’s a baseline of about 15% of a fund, that means for those who’re a $100 million fund, the typical possession stake [you have in your startups] is round 15%. If you’re a $50 million fund, the typical possession is about 7.5%.

We then checked out efficiency throughout our fund managers, and it seems that of funds with $50 million in capital — our better-performing funds — have extra possession than 7.5%. They have extra like 10% to 12%. Now, once you have a look at these tiny funds, for those who’re a $15 million fund, 15% of that [should equate to] 2.2% possession, however we’re seeing that these tiny funds are literally getting extra like 4% to five% possession. They’re punching above their weight as a result of of who’s concerned.

TC: Who have you ever backed to date?

MK: The first one is Form Capital, a fund from Bobby Goodlatte and Josh Williams. Both have been early at Facebook; Bobby led the staff that designed Facebook Photos and was later an [entrepreneur-in-residence] at Greylock. Josh cofounded Gowalla (acquired by Facebook).

TC: How massive a fund are they elevating and the way a lot are you giving them?

MK: They raised a $15 million fund, and our technique is to [account for] 20% of [each of these funds], so we wrote them a $3 million examine.

The second fund supervisor is Jeff Morris Jr.; he runs a fund known as Chapter One. He was a senior product man at Tinder and and an energetic angel, and he raised a $10 million fund final yr into which we wrote a $2 million examine.

TC: And the third?

MK: The third supervisor hasn’t closed the fund, so I can’t disclose his title, however he was a very early worker at Uber and ran their information groups.

The final is an attention-grabbing instance as a result of this individual may in all probability exit and lift $100 million, however to my level about not eager to compete towards everybody on this planet in writing a massive examine, he’s content material to put in writing [sub $500,000] checks into attention-grabbing information analytics and AI and machine studying corporations, and all people desires him concerned as a result of of his expertise and his community of information scientists worldwide.

TC: When Chris Sacca dove in, it was his full-time job, I believe. Do you care if these managers are targeted solely on investing?

MK: No. With Nano we’re investing in individuals who may very well have a day job, which might not be a match for our foremost fund, however with our Nano fund, our aperture is wider. We welcome anybody on the market seeking to handle $15 million or less to succeed in out.

TC: Well, to be clear, you’ve gotten some standards. What is it?

MK: No matter who we spend money on, they should have funding expertise and an funding observe report. What we actually look for on the finish of the day is a one that has some kind of benefit — whether or not it’s area experience or networks. So you possibly can be an incredible laptop scientist in Pittsburgh at Carnegie Mellon and for those who’ve made some investments [we’d talk with you]. It might be somebody popping out of Stripe or PayPal or Facebook or an entrepreneur in Atlanta.

TC: A $30 million fund of funds goes to get dedicated fairly quick on this market. Is the plan to lift perhaps one yearly?

MK: We have an unimaginable prime of the funnel, and as you’re alluding, we’re going to be inundated. But we stroll in there and attempt to meet with all people.

We’re additionally in discussions with our current fund managers to create a nano fund for [some of] them. So, you realize, think about one of our fund managers, working a $100 million fund. Why not create a $10 million nano automobile with them the place they might write $250,000 to $500,00 examine? They don’t need to replenish their fund with these small checks, however you possibly can see how, in the event that they have been to create this smaller automobile, it might be very attention-grabbing for them for a returns perspective.

TC: So you’d write them a examine for a third of this nano fund . . .

MK: And their LPs would fill in the remainder. I’m positive they’d be excited to do it.

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