“Do You Feel Scared? I do, but I won’t stop and falter.”
-Howard Jones
When we launched QDS Capital, one of the questions that Nikki and I feared most was “you guys are first time fund managers, how can we trust you with our investment dollars”? To be honest, going back months when QDS Capital was just a twinkle in our respective eyes, this was a question that we asked ourselves. When you think about the venture world, your immediate thoughts drift to Andreesen Horowitz, Sequoia, Kleiner Perkins and the other legends on Sand Hill Road. But these firms were all first time funds at one point . . . does it take venture firms multiple funds to finally get things right?
More than ever, in 2021, individuals have a range of investment choices to suit their particular financial goals and appetite for risk, as well as choices that allow them to drive impact (beyond monetary) across asset classes, geographies, and verticals. Technology has knocked down barriers to investment and opened up a world of opportunity in years past only accessible to the ultra wealthy.
One of the benefits of this increasingly flat world is that we can be aggressively data driven in our decision making on the investment side. In 2021 we now have a treasure trove of data to analyze and answer questions regarding asset classes — and within the venture world, which funds we should target with our dollars. The short answer is that first time funds actually *outperform* non-first time funds. For more discussion of this phenomenon, we can look here and here and here to see that, in fact, we should be more optimistic about first time funds and their ability to return higher IRR/MOIC. Theories abound as to what is driving this phenomenon, and rather than speculate as to root causes (or risk overpromising how Fund I here at QDS will deliver), we hope that as you look across your spectrum of possibilities in how you deploy capital, perhaps its time to retire this notion that first time funds are “riskier” than other funds.
Obviously, all accredited investors are constantly balancing and re-balancing their investment decisions based on the ever-changing mosaic of everyday life. However, what we are learning as more and more people dip their toe into the world of venture investing is that you need to identify fund managers that you know and trust – but don’t be scared off completely if this is their first fund.