Venture firms raised $9.3 billion in the first quarter, according to PitchBook data, meaning this year will likely not match or exceed 2023's total of $81.8 billion. While emerging managers are feeling the downturn in funding markets the most, some emerging VCs, such as A*, still have enough name recognition and a good track record to succeed.
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. In addition to making select new investments at the Series B stage, the company plans to continue to focus on leading seed rounds and doubling down on its portfolio companies at the Series A stage.
“We found that our product-market fit was really in the early stages and launch stages, and we are working one-on-one with founders while continuing to support breakthroughs in our portfolio,” Siegel said. “That’s where we’ve been most successful.”
Zero to One is a reference to Peter Thiel's book of the same name. It's a VC term that means turning a new and unproven concept into a company with a product and customers, rather than a startup that imitates or expands on an existing idea.
The fund will continue to invest in general and diverse industries. Gupta said he likes finding the right founders and following them in whatever industry they are building. This means the company is currently spending a lot of time on the resurgence of AI and consumer technology.
“If you support the right people, everything will take care of itself,” Gupta said.
One notable 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 VCs and former operators. Max Levchin, David Sacks and Peter Thiel, formerly of PayPal fame, were all backers of Fund I, in addition to Tony Xu, co-founder and CEO of DoorDash, and Eric Wu, co-founder and president of Opendoor.
Turning to institutional investors is not uncommon at the Fund II stage, and another VC firm spoke to me after doing the same this week. This is because the company has a sufficient track record to attract institutional investors and will need these deep-pocketed investors when the company seeks to increase its fund size in the future.
A* doesn't try to save as much money as possible. This intentionally kept Fund II at only a slight increase over 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 preferred partner, but remain small enough to focus on generating incredible returns for our investors. We wanted to focus on mentoring, not just deploying large sums of capital.”
The company has backed 35 startups to Series B and above in Fund I, including fintech startup Ramp, workflow tool Notion, and wholesale marketplace Faire. He has also led seed rounds for companies such as AI startup EyeTell, recruiting marketplace Paraform, and primary care startup Aligned Marketplace. The company has also incubated three companies that are still under wraps.
The company believes it stands out in a very crowded seed market due to its three founding partners and their extensive experience across industries and over 30 years.
Hartz's name recognition in the tech world probably doesn't hurt either. Hartz launched and scaled both Eventbrite and Xoom through their respective exits before working at Founders Fund and making angel investments in companies including Gusto, Pinterest, and Reddit. Gupta served as Uber's Chief Financial Officer and OpenDoor's COO and CFO. As an investor in Coatue, Siegel has backed the likes of Peloton, Instacart, and DoorDash.
The group had known each other for several years before talking about launching the fund in late 2020. Now, with this latest fund, they look to continue finding and supporting great early-stage founders in markets that are very different from those where the company first launched. .
“The challenge of our time is that businesses die not of hunger but of indigestion,” Hartz said. “We can really help businesses that are hungry for insight and want every bit of support to go from zero to one and get to a capital-rich place.”
