There is a bit of wisdom that well-established venture funds are the best place to train new investors. That is, that venture is an apprenticeship business. And the corollary of this wisdom is that the good new funds are spin-outs from existing funds.
The thing is, neither is true for seed-stage venture.
I've been thinking about this after a smart friend mentioned an interest in spin-out funds. I decided to look at some actual data. I dug around what I (and many others) would consider the top dozen seed funds and the backgrounds of their founders.* I took note if the founders previously worked at another fund, started a company, or held operating roles.
So what did I learn?
Single Partners Launched Most of the Top Funds
Single general partners founded 83% of these funds. This challenges the notion that funds are best started by teams. These single-founding partners tended to expand their firms over time, building the institutions they envisioned. Almost all later expanded to add new, non-founding investing partners—80% of these funds grew this way. The founding partner typically retained firm leadership while adding these new partners.
Operating Backgrounds at Nearly All Funds
One lesson is that an operating background matters. And it matters a lot. Among top-performing seed fund founders, 86% have an operating background. Being a startup founder is less common than might be expected. 71% of seed fund founders held meaningful operating roles in prior companies, and 36% had founded a startup.
Prior Fund Experience is Actually Uncommon
Individuals with no fund background started almost all the top seed funds. A mere 21% had prior fund experience. The industry has seen a lot of disruption from outsiders. Indeed, outsiders bring new perspectives and are far more likely to disrupt the status quo. This goes against the intuition of my friend and a lot of other people I've chatted with. John Doerr famously argued that it costs $30 million to train a new venture capitalist. That certainly isn't true among the new top funds.
Of course there are few hard-and-fast rules in venture. There are awesome seed funds that defy all of these patterns. But taking a look at the past helps us understand the nature of the business we are in.
* I included all the seed funds with founders on the Midas List or on the CB Insights Smart Money list, and the four seed funds with the highest Series A follow-on rates.
These are Baseline Ventures, Cowboy Ventures, Felicis Ventures, First Round Capital, Floodgate, Forerunner Ventures, Founder Collective, Harrison Metal, Lowercase Capital, OATV, SoftTech VC, and SV Angel.