When career investor and entrepreneur Ben Narasin set out to raise his first venture capital fund, everyone said it would take him at least a year to raise his initial target of $50 million.
But after just 25 days of talking to prospective investors, he had commitments for more than half of the fund. In May 2022, Ben closed on an oversubscribed $60 million seed fund to launch Tenacity Venture Capital. Tenacity’s investors include 36 VCs who represent more than a dozen different funds — plus a handful of startup founders.
Ben credits his speedy fundraising to his 15-year track record in venture capital. He worked for eight years as a seed investor at TriplePoint Ventures and six as a traditional VC, spending his last four years as a venture partner at New Enterprise Associates (better known as NEA, the world’s largest venture capital firm) before spinning off his Tenacity fund in 2021.
“Seed [investing] is what I really love,” he says. “It’s where I get to spend the most time with entrepreneurs in the most formative and material way. It’s where I can actually be the most helpful.”
On a recent episode of the How I Raised It podcast, Ben shares a wide range of insights from his 15-year career in venture capital, including how to become a VC, how to raise your first fund, and how to get your idea in front of investors at Tenacity.
How to generate value as an early venture capital associate
Ben sees a market opportunity for young venture capitalists who may not take the traditional route into investing. The somewhat standard career path involves graduating from a top university, working for a large bank, and then getting onto the radar of a reputable recruiter who facilitates the connection to a VC firm with an open associate partner role.
“This whole process for becoming an associate is becoming very homogenized,” he says. “But change always creates opportunity. That’s why when somebody spins out or creates a new fund, or somebody enters a new sector, opportunity presents itself.”
Ben says one of the best ways for new VCs to demonstrate their value is to build up a strong capacity for networking — one that will someday evolve into deal sourcing and making strategic introductions.
“When I started off as a seed investor, I knew only 12 VCs,” Ben says. “At the end of my eight-year tenure at that particular firm, I knew 327. I made a very active effort to get to know VCs and to introduce them only to my best companies.”
Discerning a high-quality introduction from a time-wasting one is an essential skill for up-and-coming VCs.
How to calculate the target amount for your venture fund
As he prepared to get Tenacity off the ground, Ben was able to mine his own career for data to help him establish a target amount for his first fund.
It’s a figure that must be largely determined by pace — the number of deals the fund expects to do in a year.
“I looked at my history, and I do between seven and 10 deals a year, typically,” Ben says. “Now that I’m going to be a primary lead or a co-lead, I will probably be at the lower end of that range.”
The typical model in venture capital is to raise a fund that will be deployed over a three-year period. With that timeline and his desired pace, Ben wanted to raise enough capital to fund 21 deals.
He referred to the average trailing size of a seed deal — a little shy of $2.5 million — to ultimately determine a target amount of $50 million.
Putting that into a formula might look like:
(3 years) x (avg # of deals per year) x (average deal size) = target fund amount
“I will learn over time whether that’s enough, and if it’s not then I’ll have to change it,” Ben says. “I could raise a lot more, but I don’t want to because I don’t want to have pressure to deploy more capital and do more deals than I’m comfortable doing.”
How to approach raising your first fund: Four tips
While Ben was able to draw on decades of experience and connections to launch his first fund, he offers four pointers for first-time fund managers who are starting from scratch:
- Play the long game. It traditionally takes new fund managers well over a year to raise their first funds — often, it takes two or three years. But you’re building relationships that will mature over time. If someone declines to invest in your first fund, keep them on your radar. You may be nurturing a future investment in your second or third fund.
- Pick a focus. Ben offers this advice with a caveat — generalist funds actually outperform focused funds over time. That said, for a first-time fund manager with little concrete performance to show, selecting a focus can help guide conversations with potential investors.
- Demonstrate your ability to pick. Avoid hypotheticals like “I would have invested in XYZ,” and instead show that you’re willing to back what you believe in. Use AngelList to find companies to invest in, even if you provide a small amount to start.
- Understand that you’re in the frog-kissing game. Just like the startup founders that will one day be pitching to you, you will have to make a lot of calls and take a lot of meetings to find the right-fit investors for your fund.
How to use special purpose vehicles (SPVs)
Ben designed Tenacity with a one-and-done concept — the fund makes its full investment at the seed stage and does not reserve any money for follow-on investments in later rounds. He prefers investing this way because the return multipliers are often greater in early rounds.
But he doesn’t expect to sit on the sidelines when his portfolio companies succeed. Instead, he works with Tenacity’s LPs (limited partner investors) to fund SPVs that will make later-stage investments.
Ben gives an example of a recent investment opportunity he encountered:
He learned about the opportunity a little late but really liked the company. He put in $500,000 — which is much less than he wanted to — and got the entrepreneur to give him a side letter right to invest up to $10 million in the next round. When it was time for the founder to raise the next round, Ben sat down with him to create a pitch video that he then sent out to Tenacity LPs likely to join the $10 million pot.
Using SPVs allows Ben to work with his LPs in different ways. He may cap an individual investment into Tenacity’s primary fund, but he can offer the right of first refusal on future SPVs to LPs who want to invest more. This way, Ben can funnel the best investment opportunities to the investors who have previously supported him.
How to pitch your startup to Tenacity
Tenacity doesn’t have a traditional website. Instead, Ben directs people to www.pitch-ben.com, a single-page site where founders can submit a 60-second video pitch. In return, Ben promises a 60-second feedback video for every pitch.
When it comes to what he’s looking for, he’s open to almost any early-stage (pre-Series A) idea.
“I’m about 60% enterprise, 40% consumer,” he says. “I love fintech. I love marketplaces. I’m looking fundamentally for entrepreneurs that make me say, Wow. I want an idea that grabs me by the throat as soon as I hear it.”
And Ben says needs to see five things to make an investment: “People, people, people, a great idea and a huge market.”
Nathan is also the CEO of Fundingstack.com which is a new platform for VCs and investment bankers to both raise capital and assist clients and portfolio companies.
Users of these platforms have raised over $9.7 billion since 2016.
This article is based on an episode of Foundersuite’s How I Raised It podcast, a behind-the-scenes look at how startup founders raise money.