What to Look For in a VC Fund
April 2023
Eric Rosenfeld
“What should I look for when evaluating a venture fund?” is a question we occasionally hear from prospective investors as well as OVF investors considering funds focused on other geographies, founder demographics, or specific sectors.
Investing in a VC fund has parallels to investing in a startup: Does the management team bring a track record of stability & success; industry, scaling, & investing expertise; and sustainable sources of competitive advantage? Are the fund’s investment focus and value proposition pure and easy-to-explain? Is the differentiation clear and valuable? Could they be the leader in their market? The top performing funds have a clear sense of purpose and strive to be the best within their area of focus. VC firms get in trouble when they venture outside their circle of competence, or when their thesis becomes vague or changes with the wind – eg, drones and IoT 5 yrs ago, blockchain and crypto 2 yrs ago, or AI/ML last year.
Investing in a venture fund also has parallels to selecting a mutual fund or ETF as part of a diversified portfolio. Just as a mutual fund or ETF might focus on a sector [clean energy], a style [dividend stocks], or a region [India], the best venture funds might focus on a business model [marketplaces or Saas], a demographic [a university’s alumni], a sector [materials science], or a region [Greater Oregon]. Constancy of focus helps build investing expertise, deal flow, investor trust, and brand clarity.
Other factors to consider include, has the fund created proprietary sources of deal flow? Are all investors treated the same? Is the fund admired and respected by founders? Does the fund tend to play a lead role with financings and startup boards? What is the long-term cash-on-cash performance?
OVF’s competitive advantages include…
Investing Local – Oregon was already famous for eating local and shopping local. We facilitate and champion investing local. Our regional focus and extensive local relationships provide a sustainable differentiated advantage for attracting top local deal flow, reference checking founding teams, and supporting portfolio companies.
Venture-as-a-Service – OVF pioneered an annual subscription model that provides investors the option, but not the obligation, to invest annually. Starting in 2018, our annual funds were joined with the addition of our first 5-year fund. We are now investing out of our 17th annual fund and 2nd 5-yr fund.
Collaborative Investing – By inviting diverse, accomplished entrepreneurs and tech leaders to invest in OVF and serve as Venture Partners [our active investors], we can make better investment decisions, add more value, and achieve better returns.
Free Ice Cream and Beer for Life – OVF is the only venture fund offering free ice cream or beer for life when a fund generates a >10X return. Several OVF funds are getting very close!
And, what about performance? OVF’s funds at maturity [10 yrs] are returning >2X net cash-on-cash and >3X net total value to paid-in capital.