Venture firms raised $9.3 billion in the first quarter according to PitchBook datameaning this year likely won’t match or surpass 2023’s $81.8 billion total. While emerging managers are feeling the frost of the fundraising market more, some emerging VCs like A* have enough name recognition and enough good track record so they can continue to be successful.
A*, led by ex-Eventbrite founder Kevin Hartz, ex-Coatue partner Bennett Siegel and ex-Opendoor and Uber operator Gautam Gupta, has raised $315 million for its oversubscribed Fund II. The firm intends to continue to focus on early seed rounds and doubling down on portfolio companies in Series A, in addition to making select new investments at the Series B stage.
“We’ve found that our product-to-market fit is really early stage, working with founders on a zero-to-one basis as we continue to support the breakouts in our portfolio,” said Siegel. “That’s where we’re most successful.”
Zero to One is a reference to Peter Thiel Book namesake. It’s VC parlance for turning a new, unproven idea into a company with a product and customers, as opposed to a startup that imitates or expands on an existing idea.
The fund will continue to be broad and invest in different sectors. Gupta said they like to find the right founders and follow them into whatever industry they’re building. Right now, that means the company is spending a lot of time on artificial intelligence and the revival of consumer technology.
“Everything takes care of itself when you support the right people,” Gupta said.
The one notable change between Fund I and Fund II is the LP base of the vehicle. Fund II was raised entirely by institutional investors, while Fund I was backed by several well-known VCs and former operators. Max Levchin, David Sacks and Peter Thiel of ex-PayPal fame were all backers of Fund I, in addition to DoorDash co-founder and CEO Tony Xu and Opendoor co-founder and chairman Eric Wu, among others.
The move to institutional investors is not unusual at the Fund II stage, another VC firm told me just this week after doing the same thing. This is because companies have enough of a track record to attract institutional investors, and these deep-pocketed investors become essential as companies look to increase their capital sizes along the way.
However, A* does not want to raise as much money as he can. He purposefully kept Fund II a modest step up from the firm’s first fund — Fund I raised $300 million, exceeded its $250 million goal, and closed in 2021.
“Capital size is strategy and strategy is capital size,” Siegel said. “We want to be the partner of choice, but small enough that we can focus on creating incredible returns for our investors. We wanted to focus on mentorship and not necessarily on the development of large funds.”
The firm backed 35 startups in Fund I, including fintech startup Ramp, workflow tool Notion and wholesale marketplace Faire, all in Series B or beyond. He also led the first round for companies such as artificial intelligence startup EyeTell, recruitment marketplace Paraform and primary healthcare startup Aligned Marketplace. The company also incubated three companies, which are still under wraps.
The company believes it stands out from the very crowded seed market because of its three founding partners and their vast experience across industries and three different decades.
Hartz’s name recognition in the tech space probably doesn’t hurt. Hartz launched and scaled 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 the former head of finance at Uber and COO and CFO at Opendoor. As an investor in Coatue, Siegel backed Peloton, Instacart and DoorDash, among others.
The group knew each other for years before they started talking about launching a fund in late 2020. Now they’re looking to use this latest fund to continue to find and support great early-stage founders in a very different market than the company that originally started the .
“The challenge of our time is that companies are not dying of hunger, but of indigestion,” Hartz said. “We can really help these companies that are hungry for information and want all that help to go from zero to one where capital is abundant.”
