Oct 11, 2017 · 29m · 20vc
20VC: What Does It Take To Raise A Venture Fund Today, An Analysis of The Explosion of Seed Financing & Why IRR No Longer Takes Centre Stage with Samir Kaji, Senior Managing Director @ First Republic Bank
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of The 20 Minute VC, host Harry Stebbings interviews Samir Kaji, Senior Managing Director at First Republic Bank, to analyze the rapid explosion, fundraising mechanics, and impending consolidation of the micro venture capital landscape.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 24.5% of the talking time here. How this is scored →
Harry as informed peer 3.3 Guest teaching 4.7 Guest disagreement 2.3 Harry pushing back 1.7
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 14:45 Samir rejects family office direct co-investing
Samir forcefully dismisses the popular trend of family offices making direct startup investments, stating explicitly that it scares him and will end badly for most.
Hardest push from Harry ▶ 9:11 Harry challenges the assumption that micro VC growth is harmfulHarry pushes back on Samir's concern over fund proliferation by questioning if all money is good money and if more seed capital simply fosters more entrepreneurship.
Biggest teaching moment ▶ 19:45 Samir reframes IRR markups as vanity metricsSamir educates the host on how modern LPs evaluate Fund 2s, explaining why early IRR and Series A markups are heavily discounted and essentially meaningless.
Harry holds his own ▶ 19:26 Harry demonstrates deep LP knowledge and sector quotesHarry displays host expertise by citing specific market dynamics around markups and quoting industry insider phrasing like Chris Douvos's 'mula in the cooler'.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Samir Kaji's Journey into Early-Stage Venture Banking | 2 | 3 | 1 | 1 | The interview opens on a warm, friendly note with Samir sharing his unusual transition from selling vacuum cleaners to joining SVB in the late 1990s. Harry asks a simple follow-up about bubble-era takeaways, allowing Samir to provide historical context on venture returns between 1999 and 2009. The dynamic is completely cooperative with no conflict. | |
| The Evolution and Impact of the Micro VC Explosion | 4 | 5 | 2 | 3 | Harry asks whether the massive growth of micro VCs is fundamentally good, challenging the notion that all capital is helpful. Samir reframes the premise by walking through both pros (diversity) and cons (diluted talent, bloated seed valuations). While polite, Samir directly counters the idea that more capital always benefits founders. | |
| LP Allocation Dynamics and Risks of Direct Co-Investing | 4 | 6 | 4 | 2 | Harry asks about signaling and co-investment rights for family offices, prompting Samir to get on a soapbox against direct family office investing. Samir strongly warns that direct investing by inexperienced family offices is dangerous and likely to end poorly. The interaction shows high guest conviction without host friction. | |
| Practical Realities of Micro VC Fundraising and Portfolio Valuation | 4 | 5 | 2 | 2 | Harry asks precise questions about fund sizes, fundraising timelines, and early IRR markups. Samir educates the host on LP mindsets, explaining that early paper IRR is essentially meaningless in today's market due to easy Series A markups. Harry demonstrates good sector vocabulary throughout. | |
| Building a Long-Term Venture Franchise vs. Raising a Single Fund | 3 | 4 | 2 | 1 | Harry picks up on Samir's concept of a venture franchise and prompts him to differentiate it from just raising a single fund. Samir explains the distinction between hobbyists and long-term firm builders, then proceeds through a quickfire round covering placement agents and common fund manager mistakes. | |
| The Future Outlook and Impending Consolidation of Micro VC | 3 | 5 | 3 | 1 | Harry asks a brief closing question about the future of micro VC and specialization. Samir delivers a strong contrarian forecast, predicting major market consolidation with active seed funds dropping from 800 to under 250 by 2019. |
Statements from this episode (18)
Kaji: Venture market has seen a nine-year bull run since 2008
“We've been in a nine-year bull run where we haven't seen a downturn since 2008.”
Kaji: Over 80% of 1999–2009 VC funds generated subpar returns
“Over the past prior decade, you know, 99 to 2009, the performance of venture funds was, to say the least, subpar. And the vast majority of the funds, I'd say 80% plus, We're returning capital at a pace that was incredibly slow, and we're having returns that we…”
Kaji: Startup origination costs dropped 100x between 1999 and 2009
“The cost of capital for starting a company is that come way down, almost a factor of a hundred X, start from 99 to 2009”
Kaji: Over 450 micro VC firms exist in US and 700 globally
“Today, we have over 450 micro VC firms in the U.S. Alone. If you look globally, that number is close to 700.”
Kaji: 130 to 150 new micro VC funds will launch in 2017
“We'll end up seeing probably 130 to 150 managers. Brand new funds in, in 2017.”
Kaji: Micro VCs have 3x more female decision-makers than large firms
“And so we looked at the numbers in terms of female VCs relative to female partners at large funds and micro VCs by numbers. Have three times as many female investors in decision-making roles as a percentage of total partners than large life cycle firms.”
Kaji: Top 10% micro VCs will outperform, but vast majority won't reach 3x net
“And if you're investing in an index, you're going to lose. I think the top 10% of micro VC funds will do phenomenally Well, and will significantly outpace the returns of larger funds, but the vast majority of the micro funds are going to have a tough time retu…”
Kaji: First-time fund managers without experience rarely raise institutional capital
“The likelihood of a first-time fund getting money from an institutional without any prior experience is next to zero.”
Kaji: Family office co-investing in seed funds will persist for 6–12 months
“Direct investing has always been something that has been very front of mind, and the ability to invest in a seed fund and co-invest has been something that a lot of family offices have done, and I don't think that changes at least over the next six to 12 month…”
Kaji: Direct VC investments by family offices will end badly
“The vast majority of high net worth individuals and family offices should not be doing direct investments. It's too hard. There's too many red flags that are sitting on the horizon. And I think it's going to end badly for a lot of people.”
Kaji: Average venture capital fundraise takes 18 months for new managers
“Yeah, so the average right now is 18 months. If you are a first time manager, i.e. Have never done it before, you're probably going to be in that 18 month time frame, if not longer.”
Kaji: Micro VCs must secure at least 30%–40% for initial close
“So what I usually counsel managers is if you have a target of X amount, the first close should be at minimum 30 to 40% of the fund. Raising less than that as part of the first close sends a bad signal, and I think it really, you know, questions the overall via…”
Kaji: Early IRR metrics are meaningless when micro VCs raise Fund II
“Right now, Quite candidly, it's a little bit meaningless and it's more qualitative in function. So if we see a manager that's, you know, tracking at a 1.3 X, that's fine. But the reality is it means very little.”
Kaji: Micro VCs raising $15M–$20M Fund I cannot easily scale up Fund II
“I think people that raise that 15 to 20 will have to probably raise another fund of 15 to 20 when it comes to Fund two with the understanding that when it comes to fund three, if they've shown real traction, if they have a few distributions, and that's usually…”
Kaji: Micro VC firms should not hire placement agents
“I'm generally not in favor of a placement agent with respect to micro VC firms. I think managers should be able to sell their own story. The fundraising element of running a firm is probably one of the most important. Getting the feedback, pitching the story. …”
Kaji: Emerging VCs underestimate math needed to return 3x to 5x capital
“They underestimate the difficulty it is to actually run a successful venture franchise and return capital. It's not uncommon for me to see decks where there's proclamations that a certain fund will return a three to five X, but if you look at the math required…”
Kaji: Homebrew raised its debut fund in under 100 days in 2013
“I think Homebrew did an incredible job. I mean, they raised their first fund in 2013 in less than a hundred days, and they raised it from some very, very high profile and very reputable LPs.”
Kaji: Active seed funds will shrink to under 250 by end of 2019
“I think consolidation is, is the future. I don't see a lot of first time or second time funds raising their next fund. And it may not be a function of who they are, but rather a very different macro environment and a general understanding by LPs that we just d…”