It has been almost 10 years since Union Square Ventures launched the first Opportunity Fund, creating a strategy that has since been copied by many other VC’s. An opportunity fund is basically a separate pool of capital that allows a VC to continue to invest in its most promising portfolio companies once the core funds have exhausted their follow-on reserves. This puts the VC firm and its investors in a position to continue to exercise their pro-rata rights in later-stage rounds instead of giving them up.
Besides doubling and tripling down on existing portfolio companies, opportunity funds sometimes have the mandate to be able to invest in later-stage companies outside of the existing portfolio…companies that the VC missed in earlier rounds of financing but are squarely in their investment focus.
We at Version One have long been thinking about an Opportunity Fund for our firm, but only recently decided that we should actually pursue this strategy. I am hence very happy to announce the Version One Ventures Opportunity Fund I with CAD $25m in commitments. The mandate of the fund is to invest in the most successful companies from Fund I (2012 vintage) and Fund II (2014 vintage).
What changed our mind to pursue an Opportunity Fund? Three factors are at play:
- Our portfolio has now matured enough that we have a number of fast-scaling Series B and Series C companies in our portfolio – what were just single instances a few years ago are now a much broader sample size / trend.
- We stay involved longer with some of our companies. While we are still mostly focused on trying to be the most value-add investor between when we invest at seed / pre-seed and the Series A, we now have a few companies in our portfolio where we are still active board members many years into the investment. Being intimately involved with a company past their Series A puts us in a position to have a better sense if we should double down on an investment in later rounds of financing.
- Our investors were very interested in backing an opportunity fund. In fact, one of our LP’s approached us with the idea of anchoring such a fund and the feedback from our other investors has been incredibly supportive.
While raising a new fund is never an achievement per se (returning the fund profitably is!), I am very excited about our new Opportunity Fund as it gives us the chance to have an even closer and longer relationship with some of our portfolio entrepreneurs and partnering with them to build category-leading companies.