National Venture Capital Strategy
Ecosystem builders are clear about the need for capital to drive entrepreneurial growth. What’s challenging is determining the best strategy to gain access to the right investors to get high-potential businesses and entrepreneurs on the road to product development and exploring fit in the market space.
Capital for startups had never been easy to come by in the Midwest. While building the entrepreneurial ecosystem in Cincinnati, I knew we would need to reach beyond the ecosystem’s immediate zip codes to catalyze growth for the long term. Getting fund managers from Silicon Valley to pay attention to startups in the Midwest would be no easy feat, but our national fund-of-funds strategy made it happen. Here’s how.
A FUND OF FUNDS FOR CAPITAL—
A “fund of funds” is just what it sounds like. It is a fund that invests in other funds instead of investing directly in startups. Structurally, it’s an investment vehicle run by a general partner (GP) who attracts and manages multiple limited partners (LPs), investing their money in high-quality venture funds with a proven track record of generating returns from a strong portfolio of startups. Fund of funds have been around forever. They’re a smart way to protect investors from the risk of putting all their money into one startup, but not enough cities in the Midwest were utilizing a fund-of-funds strategy to spark innovation.
Inspired by Chris Rizik’s Renaissance Fund, we set out to design a strategic fund of funds for Cincinnati called The Syndicate Fund. Managed by Cintrifuse (GP), it was designed to attract investors primarily from Cincinnati’s top BigCos (LPs) by investing in high-quality, early-stage venture funds from both inside and outside the state of Ohio.
Yes, that’s correct: We invested regional dollars in early-stage venture funds outside of the region. This was part of our national strategy. Investments made to venture firms across the nation with proven track records and alignment with the needs of our corporate LPs yield strong returns and, just as importantly, give us access to the world’s most emergent technologies, time-tested venture capitalists, and startup mentors.
CINTRIFUSE’S SYNDICATE FUND OPENS DOORS
Positioning Cintrifuse’s Syndicate Fund as an LP within the best venture funds in San Francisco, Los Angeles, New York, Boston, Boulder, Chicago, Houston, and beyond gave us leverage for our regional BigCos, who gained insider knowledge of emergent innovations in their verticals. This resulted in leverage for our ecosystem builders, who learned from the best fund managers and company builders in the nation how to increase innovation investments multi-fold and thereby accelerate ecosystem success. And it offered significant relationship leverage for our local entrepreneurs, who gained outsized exposure and increased access to risk capital thanks to strong relationships with the highest performing venture funds in the nation.
Thanks to Cintrifuse’s Syndicate Fund, startups like NaviStone and many others received critical support to grow. NaviStone was on a solid growth path with a highly differentiated approach to direct mail solutions that required a new round of institutional capital. Because Cintrifuse was an LP in a major San Francisco fund, we were able to communicate the potential of NaviStone to the GP of that fund. The fund manager invested in NaviStone and joined its board of directors.
Now, the GP makes it a habit to visit Cintrifuse to meet other high growth-potential startups in the region when in town for a board meeting. Today, this one GP alone has mentored many other startups founded in the Cincinnati region. The GP has also pitched startups within their portfolio to our regional BigCos.
The work that is required for CEOs and Midwestern founders to gain access to VCs can’t be understated. Without the backing of an organization like Cintrifuse Syndicate Fund—one that vets opportunities and ensures that GP time is well spent—startups like NaviStone would have to work significantly harder to get in front of VCs willing to invest. The introduction alone is an example of the leverage that’s possible thanks to a national fund of funds.
BUILD RELATIONSHIPS, TRANSCEND
Our success with NaviStone and other startups was a direct result of our national relationship-building strategy. When we started the fund, we took meetings with hundreds of institutional early seed stage investors. We proactively sought investors we knew would be active, engaged mentors with investment philosophies that closely aligned with our LPs’ growth strategies.
Even though we couldn’t invest in all funds, the many meetings helped us build a strong national network of relationships with new venture capitalists. Now, innovation events held at Cintrifuse attract VCs from all over the nation who keep their fingers on the pulse of what’s happening in Cincinnati.
More regions can benefit from a highly engaged national fund-of-funds strategy. Instead of creating bubbles around regions and recycling the same resources over and over again, ecosystem builders can intentionally grow relationships with high-quality partners and sophisticated company builders who hold expertise in the tech categories that matter most to our regions. We can build networks of relationships that mutually benefit our investors, BigCos, and entrepreneurs.