As European tech has matured, the number of first-time VC funds being raised has grown. But it’s tough raising Fund I — especially in today’s funding environment. A new “YC for first-time managers” wants to solve this cold start problem. Vienna-based Allocator One is announcing its first cohort and plans to run two cohorts a year, with a total of 12-15 people a year.
It will give all VCs standardised deal terms: a €1m anchor investment per general partner (GP), a 1% management fee on that commitment and 10% interest to the manager. That’s not as good as the standard 2% and 20% deals that most VCs take, but Allocator One handles regulatory and admin work and also supports investors with their fundraising readiness. Applying is as easy as clicking a button on the website.
It’s already selected its first cohort, which includes just five firms, including Sarah Drinkwater's Common Magic. Investors in Allocator One include successful entrepreneurs like Nicolaus Schefenacker, cofounder of logistics startup Sennder, and VCs like Rouven Dresselhaus, cofounder and managing partner at Cavalry Ventures.
While there are hundreds of incubators to help get startups off the ground, there are few for budding fund managers. There’s VC Lab in the US, while in the UK there is the recently launched Thema.vc, which provides up to £5m in cornerstone investment. Jonathan Hollis of advisory firm Mountside Ventures says that it’s also planning to launch an emerging manager “accelerator” in the new year, but will focus more on first-time firms that have already done a first close or who are on fund two or three.
Allocator One’s mission
Founding partner Felix Staeritz says that first-time managers often haven’t had enough personal wealth to build up an investment track record, but if they have a bit of capital to start a fund and do a few deals, that makes it easier to bring on more limited partners (LPs).
Having an anchor investor early on is also helpful to convert more LPs and help the first-time manager answer questions about administration, side letters or portfolio construction.
“It’s really not that hard to completely fuck up your first fund. You can make big mistakes in portfolio construction quite easily,” he says. “We think we can prevent fund managers from making many of the really big mistakes that often get made.”
Allocator One’s other founding partner Michael Ströck says that the due diligence process for some LPs can be too long for a GP who wants to get to work and write cheques quickly.
The team has seen applications from over 250 GPs. Staeritz says what makes one stand out is being “very differentiated and having proprietary access to something. So we really believe in very special, focused funds.”
For Ströck, it’s those “where the fund hypothesis comes out of their life story. When a manager we talk to tells a story that I haven’t heard before at all, I’m like, ‘Oh this could be interesting.’”
"Will there be top performers from time to time who won't need us or just don't like the way we do things? Definitely. Do we see lots of appreciation even among the very best new managers for our approach? Absolutely. The market seems to be saying that this is something people want," says Ströck.
Drinkwater says that the community aspect of Allocator One — being able to be part of a cohort — is "appealing", especially given the difficult funding environment for managers from non-traditional backgrounds.
"Not coming from a wealthy background shouldn't stand in the way" of starting a fund, she says. "We should be wanting different profiles to become managers. I think programmes and LPs like this can do a lot to supercharge the next wave of European funds."
The members of the first cohort are:
- Common Magic, looking to invest in pre-seed and seed-stage startups in Europe and the US.
- Noa Khamallah of Don’t Quit Ventures (Lime’s first employee in Europe) The fund is focused on emerging markets.
- Pedja Predin and Tihomir Bajic of Fifth Quarter Ventures. A fund focused on Serbia and Croatia.
- Richard Ng of Wedge Capital. A fund looking to back founders from underrepresented backgrounds, backing 50 companies all with £50k. He was also an Ada Ventures angel.
- A fund in stealth with three GPs in France.