Fund of funds Sweetwood Ventures bets large on VC’s smallest funds

Regardless of legacy enterprise capital corporations persevering with to boost greater and larger funds, LPs might have extra luck specializing in the small stuff.

Amit Kurz, a common companion at Israel-based fund of funds Sweetwood Ventures, thinks so. He instructed TechCrunch that final yr he began to note increasingly tiny funds he wasn’t aware of getting on the cap tables of aggressive offers. Whereas these “nano” funds wouldn’t match the thesis for Sweetwood’s $70 million flagship fund, he thought it was price determining a solution to again them.

“I acquired actually intrigued as to how can we achieve publicity to that house,” Kurz relayed to TechCrunch. “They actually generate this entry to essentially the most oversubscribed rounds they usually make investments a small quantity, which is a traditional win-win state of affairs. You aren’t competing with the principle VCs, but everybody desires you since you are bringing a ton of worth.”

So, Sweetwood determined to boost a fund devoted to those buyers. Now, the agency is asserting that it raised $20 million for a separate fund to chop checks of as much as $2 million into funds which might be $15 million in dimension or smaller, with a concentrate on funds primarily based in Israel. Sweetwood has backed seven funds to date.

It’s additionally seeking to basically create nano funds by working with angel buyers.

For this aspect of the fund, Sweetwood will work with angels to match their funding into an organization whereas additionally giving them stick with it the cash that the agency places in. Whereas this might imply a success to the agency’s potential returns in comparison with simply investing immediately, they don’t take that sort of stake to start with. They’ve closed on two such offers to this point.

“It’s a no brainer for these guys,” Kurz mentioned about approaching angel buyers. “[They are] doing these offers anyway and there’s this exterior companion that doesn’t look to be a tech scout however pays them as tech scouts.”

The agency began elevating the nano-focused fund within the peak of 2021’s craziness and is now seeking to deploy into very completely different market situations the place smaller and fewer established corporations are actually struggling to boost. Kurz mentioned that whereas they had been initially apprehensive when the market situations began to bitter, they rapidly acquired over that worry as a result of they realized that the funds they again will now be writing checks to corporations at extra cheap valuations and can even have time to spend on due diligence.

Kurz mentioned when evaluating these potential investments the massive query they ask, since neither the angel investor nor nano funds are large enough to guide any of the rounds they’re in, is, why do startups wish to take their cash? He mentioned that the agency is on the lookout for funds and people that fall underneath two classes of solutions: experience and entry.

For some, particularly on the angel investor aspect, entry is king. In case you are a notable former tech entrepreneur that’s effectively linked, the pondering is that you’re simply going to listen to about extra notable offers and be invited to take part over different angels simply as a consequence of your background. Kurz mentioned this may embrace angels that had been profitable or well-known former founders.

On the opposite aspect, Sweetwood is on the lookout for funds and people with experience and specialization which might be going to be sought out by corporations to fill out rounds as a result of they bring about an outsized worth add to the desk in comparison with their verify dimension.

“Why are folks providing you with entry? Why are folks wanting you on the cap desk?” he mentioned. “It’s very a lot centered concerning the worth add and talent to realize entry to the offers extra so than your capacity to differentiate the offers or do choices on the deal.”

Whereas this nano fund is separate from the agency’s flagship sequence, Kurz anticipated that a few of these funds will develop as much as be good candidates for the flagship fund down the road. It would additionally assist them get into corporations earlier that may find yourself within the flagship’s fund portfolios as effectively.

“The very small funds are likely to outperform,” he mentioned. “The smaller you’re the extra possible you might be to generate outsized returns. I assumed, that is actually attention-grabbing, how will we construct one thing for this?”