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

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

But because the market modified, nonetheless, Cendana founder Michael Kim started to play with that components. Final spring, for instance, when he closed on $278 million in new capital commitments, he mentioned deliberate to put money into 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 much less, in addition to to put money into a sprinkling of worldwide managers.

Now Kim is again with a brand-new fund that sees him masking much more floor. Referred to as Cendana’s Nano fund, it has raised $30 million in capital from current Cendana backers to put money into as much as 12 funding managers who’re piecing collectively funds of $15 million or much less capital. There are too many good folks 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 frivolously for size.

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

MK: The seed market has developed lots during the last 18 months to 24 months. You’ve this complete world of Twitter VC, which means individuals who have loads of sturdy opinions and an operator-investor perspective, however who might not have substantial funds behind them. You’ve solo capitalists like Lachy Groom and Josh Buckley, who’ve gone out and raised a whole bunch of tens of millions 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 doubtless 95{69439eabc38bbe67fb47fc503d1b0f790fcef507f9cafca8a4ef4fbfe163a7c5} of them are [headed by] people who find themselves working on the massive tech or personal tech firms, and it’s extra of a automobile of comfort for his or her pals to speculate alongside them.

TC: And also you suppose 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 recognize, lots of the funds of funds and college endowments and household places of work have to write down massive checks, so that they’re not going to be investing somewhat bit right into a tiny $10 million fund.

TC: What are you in search of precisely?

MK: The purpose 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 possibly can generate substantial alpha with these smaller funds.

Traditionally, we’d meet with fund managers, and once they mentioned, ‘We’re going to lift a $10 million to $15 million fund,’ we had been like,’Okay, sounds attention-grabbing. Let’s discuss if you’re elevating your second fund.’ However we realized that we’re lacking out a whole section 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 operating a $100 million seed fund, you must be writing $1.5 million to $2 million checks, and that’s an excellent aggressive house proper now, as a result of not solely are there different seed funds but in addition loads of corporations — Founders Fund, Sequoia Capital, Lightspeed, Normal Catalyst — which can be very lively on the seed stage. We’re coming throughout loads of these managers who need to keep small, as a result of by writing $300,000 to $400,000, they’re not competing in opposition to Sequoia or Forerunner Ventures; they’re simply sliding into the spherical.

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

MK: Proper now, we now have greater than 100 portfolio funds inside Cendana, and we did some information evaluation. We seemed on the fund dimension, after which the common possession of every fund. And it turns on the market’s a baseline of about 15{69439eabc38bbe67fb47fc503d1b0f790fcef507f9cafca8a4ef4fbfe163a7c5} of a fund, which means for those who’re a $100 million fund, the common possession stake [you have in your startups] is round 15{69439eabc38bbe67fb47fc503d1b0f790fcef507f9cafca8a4ef4fbfe163a7c5}. In case you’re a $50 million fund, the common possession is about 7.5{69439eabc38bbe67fb47fc503d1b0f790fcef507f9cafca8a4ef4fbfe163a7c5}.

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{69439eabc38bbe67fb47fc503d1b0f790fcef507f9cafca8a4ef4fbfe163a7c5}. They’ve extra like 10{69439eabc38bbe67fb47fc503d1b0f790fcef507f9cafca8a4ef4fbfe163a7c5} to 12{69439eabc38bbe67fb47fc503d1b0f790fcef507f9cafca8a4ef4fbfe163a7c5}. Now, if you take a look at these tiny funds, for those who’re a $15 million fund, 15{69439eabc38bbe67fb47fc503d1b0f790fcef507f9cafca8a4ef4fbfe163a7c5} of that [should equate to] 2.2{69439eabc38bbe67fb47fc503d1b0f790fcef507f9cafca8a4ef4fbfe163a7c5} possession, however we’re seeing that these tiny funds are literally getting extra like 4{69439eabc38bbe67fb47fc503d1b0f790fcef507f9cafca8a4ef4fbfe163a7c5} to five{69439eabc38bbe67fb47fc503d1b0f790fcef507f9cafca8a4ef4fbfe163a7c5} possession. They’re punching above their weight due to who’s concerned.

TC: Who have you ever backed thus far?

MK: The primary one is Type Capital, a fund from Bobby Goodlatte and Josh Williams. Each had been early at Fb; Bobby led the group that designed Fb Images and was later an [entrepreneur-in-residence] at Greylock. Josh cofounded Gowalla (acquired by Fb).

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{69439eabc38bbe67fb47fc503d1b0f790fcef507f9cafca8a4ef4fbfe163a7c5} 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 referred to as Chapter One. He was a senior product man at Tinder and and an lively 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 identify, however he was a really 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 desirous to compete in opposition to everybody on the planet in writing an enormous examine, he’s content material to write down [sub $500,000] checks into attention-grabbing information analytics and AI and machine studying firms, and everyone needs him concerned due to his expertise and his community of knowledge 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 fundamental fund, however with our Nano fund, our aperture is wider. We welcome anybody on the market seeking to handle $15 million or much less to achieve out.

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

MK: Irrespective of who we put money into, they need to have funding expertise and an funding monitor file. What we actually search for on the finish of the day is an individual who has some kind of benefit — whether or not it’s area experience or networks. So you could possibly be an incredible laptop scientist in Pittsburgh at Carnegie Mellon and for those who’ve made some investments [we’d talk with you]. It may very well be somebody popping out of Stripe or PayPal or Fb 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 possibly one yearly?

MK: We now have an unbelievable prime of the funnel, and as you’re alluding, we’re going to be inundated. However we stroll in there and attempt to meet with everyone.

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

TC: So that you’d write them a examine for a 3rd of this nano fund . . .

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