Fund of funds Sweetwood Ventures bets massive on VC’s smallest funds

Regardless of legacy enterprise capital companies persevering with to boost larger and bigger funds, LPs might have extra luck specializing in the small stuff.

Amit Kurz, a common accomplice at Israel-based fund of funds Sweetwood Ventures, thinks so. He informed TechCrunch that final 12 months he began to note an increasing number of tiny funds he wasn’t conversant in getting on the cap tables of aggressive offers. Whereas these “nano” funds wouldn’t match the thesis for Sweetwood’s $140 million flagship fund, he thought it was value determining a strategy to again them.

“I acquired actually intrigued as to how can we acquire publicity to that house,” Kurz relayed to TechCrunch. “They actually generate this entry to probably the most oversubscribed rounds they usually make investments a small quantity, which is a basic win-win state of affairs. You aren’t competing with the primary VCs, but everybody needs you since you are bringing a ton of worth.”

So, Sweetwood determined to boost a fund devoted to those traders. Now, the agency is saying that it raised $20 million for a separate fund to chop checks of as much as $2 million into funds which can be $15 million in dimension or smaller, with a give attention to funds based mostly in Israel. Sweetwood has backed seven funds to date.

It’s additionally seeking to primarily create nano funds by working with angel traders.

For this aspect of the fund, Sweetwood will work with angels to match their funding into an organization whereas additionally giving them stick with it the cash that the agency places in. Whereas this might imply a success to the agency’s potential returns in comparison with simply investing straight, they don’t take that kind of stake to start with. They’ve closed on two such offers to date.

“It’s a no brainer for these guys,” Kurz mentioned about approaching angel traders. “[They are] doing these offers anyway and there may be this exterior accomplice that doesn’t look to be a tech scout however pays them as tech scouts.”

The agency began elevating the nano-focused fund within the peak of 2021’s craziness and is now seeking to deploy into very completely different market circumstances the place smaller and fewer established companies are actually struggling to boost. Kurz mentioned that whereas they had been initially apprehensive when the market circumstances began to bitter, they rapidly acquired over that concern as a result of they realized that the funds they again will now be writing checks to firms at extra affordable valuations and can even have time to spend on due diligence.

Kurz mentioned when evaluating these potential investments the large query they ask, since neither the angel investor nor nano funds are large enough to guide any of the rounds they’re in, is, why do startups wish to take their cash? He mentioned that the agency is searching for funds and people that fall below two classes of solutions: experience and entry.

For some, particularly on the angel investor aspect, entry is king. In case you are a notable former tech entrepreneur that’s effectively related, the pondering is that you’re simply going to listen to about extra notable offers and be invited to take part over different angels simply because of your background. Kurz mentioned this may embrace angels that had been profitable or well-known former founders.

On the opposite aspect, Sweetwood is searching for funds and people with experience and specialization which can be going to be sought out by firms to fill out rounds as a result of they convey an outsized worth add to the desk in comparison with their test dimension.

“Why are individuals supplying you with entry? Why are individuals wanting you on the cap desk?” he mentioned. “It’s very a lot targeted in regards to the worth add and talent to achieve entry to the offers extra so than your skill to differentiate the offers or do alternatives on the deal.”

Whereas this nano fund is separate from the agency’s flagship sequence, Kurz anticipated that a few of these funds will develop as much as be good candidates for the flagship fund down the road. It can additionally assist them get into firms earlier which may find yourself within the flagship’s fund portfolios as effectively.

“The very small funds are inclined to outperform,” he mentioned. “The smaller you’re the extra possible you’re to generate outsized returns. I believed, that is actually attention-grabbing, how can we construct one thing for this?”

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