This Week in Startups

Fund of funds: origins, evolution and deep dive with Michael Kim | E1890

Jan 31, 2024
Michael Kim, a fund of funds expert, shares insights on the evolution and dynamics of early-stage investing. He discusses the concepts of alpha, beta, and quality indices, and dives into why micro VCs are gaining traction. Kim reveals the increasing interest of limited partners in pre-seed and seed investments, highlighting the factors driving funding in these areas. He also emphasizes the importance of consistent returns and the critical relationships between fund managers and startup founders in navigating today's startup ecosystem.
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INSIGHT

Fund of Funds Purpose

  • Fund of funds exist because some LPs are too large to invest in small funds directly.
  • They act as a filter, providing access and diversification for LPs.
INSIGHT

Fund of Funds as Feeder

  • LPs invest in fund of funds for early signaling and access to pre-seed/seed deals.
  • Some venture capital firms have carve-outs specifically to invest in fund of funds.
ANECDOTE

Micro VC Origins

  • Early seed funds emerged because multi-stage firms found it less cost-effective to write small checks.
  • AWS and open-source software made starting companies significantly cheaper.
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