Venture firms raised $9.3 billion in the first quarter PitchBook dataThis means that this year is unlikely to match or exceed 2023's total of $81.8 billion. While emerging market managers are bearing the brunt of the fundraising market freeze, some emerging VCs like A* have enough name recognition and track record to still find success.
A*, led by former Eventbrite founder Kevin Hartz, former Coatue partner Bennett Siegel and former Opendoor and Uber operator Gautam Gupta, has raised $315 million for its oversubscribed Fund II. The company plans to continue its focus on leading seed rounds and doubling down on its portfolio companies in Series A, in addition to making select new investments in the Series B stage.
“We found that product market fit is really in the early and early stages, working with the founders on a zero-to-one basis as we continue to support the breakthroughs in our portfolio,” Siegel said. “That's where we are most successful.”
Zero to One is a reference to the book of the same name by Peter Thiel. It's VC parlance that means turning a new, unproven concept into a company with a product and customers, as opposed to a startup that mimics or expands on an existing idea.
The fund will remain generalist and invest in different sectors. Gupta said they like to find the right founders and follow them into whatever sector they are building. Right now, that means the company is spending a lot of time on AI and the revival of consumer technology.
“Everything will work itself out if you support the right people,” said Gupta.
The only noticeable change between Fund I and Fund II is the LP basis of the vehicle. Fund II was raised entirely from institutional investors, while Fund I was backed by many well-known venture capital funds and former operators. Max Levchin, David Sacks and Peter Thiel, formerly of PayPal, were all backers of Fund I, alongside DoorDash co-founder and CEO Tony Xu and Opendoor co-founder and president Eric Wu, among others.
Switching to institutional investors is not uncommon at the Fund II stage, another VC firm told me this week after doing the same. This is because companies have enough of a track record to attract institutional investors, and these deep-pocketed investors become necessary as companies look to grow their fund sizes in the future.
However, A* does not want to raise as much money as possible. Fund II was intentionally kept only a modest step above the company's first fund: Fund I raised $300 million, exceeded its $250 million target, and closed in 2021.
“Fund size is strategy and strategy is fund size,” Siegel said. “We want to be the partner of choice, but small enough that we can focus on generating incredible returns for our investors. We wanted to focus on mentorship and not necessarily just deploy large capital funds.”
The company backed 35 startups in Fund I, including fintech startup Ramp, workflow tool Notion and wholesale marketplace Faire, all in Series B or higher. It also led the seed rounds for companies like AI startup EyeTell, recruitment marketplace Paraform and primary care startup Aligned Marketplace. The company also spawned three companies that are still in stealth.
The company believes it stands out from the very crowded seed market because of its three founders and their extensive experience across different industries and three different decades.
Hartz's name recognition in the tech space probably doesn't hurt either. Hartz launched and grew both Eventbrite and Xoom through their respective exits before serving a stint at Founders Fund and Angel Investing in companies like Gusto, Pinterest and Reddit. Gupta was a former head of finance at Uber and COO and CFO at OpenDoor. As an investor at Coatue, Siegel backed Peloton, Instacart and DoorDash, among others.
The group had known each other for years before they started talking about launching a fund in late 2020. Now they want to use this latest fund to continue finding and supporting great startup founders in a very different market than the company they initially launched. .
“The challenge of our time is that businesses die not of hunger, but of indigestion,” says Hartz. “We can really help these companies that are hungry for insights and want all that help get from zero to one, where capital is enough.”
