According to PitchBook data, venture firms raised $9.3 billion in the first quarter, meaning this year is unlikely to match or surpass the $81.8 billion total for 2023. Emerging managers are feeling the cooling in the fundraising market the most, but some emerging VCs, such as A*, are well-known and well-established enough to still thrive.
A*, led by former Eventbrite founder Kevin Hertz, former Coatue partner Bennett Siegel and former Opendoor and Uber operator Gautam Gupta, has raised $315 million in its oversubscribed Fund II. The firm will continue to focus on leading seed rounds and doubling down on its portfolio companies in Series A, as well as making select new investments in the Series B stage.
“We found that our product-market fit was at the seed and launch stage, and we continue to help breakout our portfolio while partnering with founders to grow from zero to one,” Siegel said. “That's where we're most successful.”
“Zero to One” comes from Peter Thiel's book of the same name, and it's a venture capital term that means turning a new, unproven concept into a company with a product and customers, rather than a startup that imitates or extends an existing idea.
The fund will continue to be a generalist, investing across a variety of industries. Gupta said he wants to find the right founders and follow them no matter what industry they operate in. Right now, the firm is spending a lot of time on the resurgence of AI and consumer technology.
“If you support the right people, everything will work out,” Gupta said.
The only notable difference between Fund I and Fund II is the LP base of this investment vehicle. While Fund II was raised entirely from institutional investors, Fund I is backed by a number of well-known VCs and former executives. Max Levchin, David Sachs, and former PayPal luminary Peter Thiel are all backers of Fund I, along with DoorDash co-founder and CEO Tony Xu, Opendoor co-founder and president Eric Wu, and many others.
Switching to institutional investors at the Fund II stage is not uncommon, another VC firm told me after doing the same this week, because the company has a good enough track record to attract institutional investors, and the company will need these deep-pocketed investors if it wants to scale up its fund in the future.
But A* isn't looking to raise as much money as possible: The firm purposefully limited Fund II to a modest increase from its first fund (Fund I raised $300 million, surpassing its $250 million target and closing in 2021).
“Fund size is strategy and strategy is fund size,” Siegel says. “We want to be a preferred partner, but we also want to be small enough that we can focus on creating amazing returns for our investors. We want to focus on mentorship and not just necessarily putting big money on the table.”
In its first fund, the firm has backed 35 startups above Series B, including fintech startup Ramp, workflow tool Notion, and wholesale marketplace Faire. It also led seed rounds for AI startup EyeTell, recruiting marketplace Paraform, and primary care startup Aligned Marketplace. The firm also incubated three companies that are still in stealth mode.
The company believes that its three founding partners and their extensive experience across various industries and three different decades sets it apart in a highly competitive seed market.
Hertz's tech credentials probably help: He launched and sold and scaled Eventbrite and Xoom before working at Founders Fund and angel investing in companies like Gusto, Pinterest and Reddit. Gupta is the former financial chief of Uber and was COO and CFO at OpenDoor. As an investor in Coatue, Siegel backed Peloton, Instacart and DoorDash, among others.
The group has known each other for years before they discussed launching a fund in late 2020. Now, they aim to use this latest fund to continue to find and back great early-stage founders in a very different market than the one the company first launched in.
“The challenge of our time is that companies don't die of hunger, but of indigestion,” Hertz said. “We can really help these companies that are starved for insight and want all the help they need to go from zero to one, well-capitalized.”