Hunter Walk is half of Homebrew. His partner is Satya Patel
Startup investors, also known as venture capitalists, are always writing blog posts providing helpful fundraising tips for entrepreneurs.
But how do VCs themselves get the millions of dollars they use to invest?
The truth is, the first skill a new venture capitalist has to utilize is not an ability to invest in great startups.
Before a new VC can invest in anything, that VC has to convince people sitting on huge piles of money to part with some of it to become "limited partners" or "LPs" in that VC's new fund.
How does a new VC do that?
The perfect person to ask is Hunter Walk.
Earlier this year, Walk quit a high-powered job at YouTube to form a venture capital firm with his buddy, Satya Patel, a former Twitter executive and partner at Battery Ventures. Patel and Walk call their new shop Homebrew .
In just a few months, Patel and Walk raised $35 million, and are already using the money to invest in early stage startups. (They are looking for startups like Twilio or Stripe – companies that make tools for the small to medium-sized businesses of the future.)
So how did Walk and Patel do it?
In a blog post and in a conversation with me, Walk provided some answers.
The first step is finding the right people.
Walk says Homebrew sought money from institutional investors – fund of funds, foundations, and endowments – rather than rich individuals, " because of their goal to build a longterm platform with us across multiple funds, their ability to bring additional capital to bear in special situations and their broad perspective on the marketplace."
Walk says he and Patel were able to meet with those types of fund managers thanks mostly to " warm introductions from other early stage funds."
So there's your first tip: If you're going to start a VC firm, you should be friendly with existing VC firms.
Walk says he and Patel emailed ~40 investors, 20 of whom took a meeting, 10 of whom agreed to meet again, 5 of whom agreed to invest.
Over the course of these meetings, Walk came to realize that potential LPs want positive answers to five questions before they'll invest in a VC firm.
Those questions are:
Will the partners at this firm have good "deal flow"? In other words, Homebrew's potential LPs wanted to know if Walk and Patel were plugged-in enough to the startup scene that they were going to constantly have a big pool of startup investments to choose from. Do they have an ability to meet the new great entrepreneurs?
Does Homebrew have good "partner dynamics?" The institutional investors wanted to see that Patel and Walk got along and had a plan for continuing to get a long in the future. "T here were a number of questions about the partnership," writes Walk. "How well do we work together? How do we reconcile disagreements? Did we have the same vision for Homebrew? Would we be dividing work in any specific way? I think Satya even got asked what my favorite food was (not kidding). "