"Should I start a fund?"

By Ryan Hoover on Dec 21, 2021

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Friends often ask me:

"Should I start a fund?"

First, some context...

I started Weekend Fund in early 2017, shortly after Product Hunt was acquired.The timing was perfect. AngelList was introducing their Venture Funds platform and I finally had enough money to make a GP commit.

At first I was uncertain if I could raise a $1M fund. I think most people have imposter syndrome when doing anything new.

A $1M fund is tiny, especially in our recent capital-abundant market. In 2017 few people started small funds and I was unsure if LPs would be comfortable with a “nights and weekends” investor while I remained the CEO of Product Hunt. Ultimately, I raised $3M for Weekend Fund 1.

Today, it seems like everyone’s starting a fund. We've seen a ton of capital flow into the market over the last few years. But before deciding to raise a fund, it's important to evaluate all options:

1. Angel invest
2. Scout
3. Join a fund
4. Run SPVs
5. Start a fund

Each has its own pros/cons.

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Angel investing

Pros:

• Deal-by-deal carry
• No need to fundraise
• Build a reputation under your own name
• Yolo into deals without justification

Cons:

• No leverage on capital
• Money required, ideally enough to build a portfolio and diversify

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Scouting

Pros:

• Relatively accessible (emphasis on *relatively*)
• No personal capital or financial accreditation required
• Typically very flexible, sometimes non-exclusive

Cons:

• Dependent on a single capital provider and brand
• Possible signaling issues (although this is rarely an issue)

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Joining a fund

Pros:

• Opportunity to learn from experienced investors
• Potential compounding advantages to work as a team
• In many cases, capital is already raised

Cons:

• Can be less effective in building your own brand
• Monday partner meetings (i.e. often need to internally "sell" deals but some view this as a pro)

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Running SPVs

Pros:

• Deal-by-deal carry
• Leverages your capital
• Flexible for low and high volume investing
• Builds trust with investors

Cons:

• It's a lot of work – every deal is a mini raise
• Unable to guarantee capital for the founder until it’s raised
• Can take too long for competitive rounds

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Starting a fund

Pros:

• LP capital provides leverage
• LPs can help with deal flow, diligence, and portfolio support
• Can collect management fees to pay bills, hire, etc.

Cons:

• Fundraising is a time-suck
• LP capital needs to be returned first
• GP commit required (although this can be smaller than most people assume)
• You now have bosses (your LPs). Congrats!

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Starting a fund was the right choice for me. It provides the right balance of autonomy and leverage from LPs’ capital, network, and support. AngelList also relieves a lot of the burden in running a fund with its back office services.

But we also run SPVs. Weekend Fund operates a classic barbell strategy. We invest in early-stage startups through the fund and later-stage opportunities through SPVs, inviting our LPs to participate. We've led SPVs as large as $5.5M.

The key is to figure out what to optimize for within your own financial and time constraints.

Want maximum flexibility and have capital to invest? Consider angel investing.

Is learning how to invest the #1 goal? Maybe join a top fund.

Do you want to prioritize autonomy and create leverage? Start a fund.

This may not answer the initial question, “should I raise a fund?” but hopefully provides more color on the options and tradeoffs for each.

There’s also more investor flexibility than ever before (e.g. 2% min GP commits aren’t really mandatory for most). Get creative.

If you’re curious how we setup our latest fund, read this. If you're planning to raise a fund, drop me a note at ryan@weekend.fund if I might be able to help. :)