The wonderful @nancydong tells me this was quite informative and I should turn this into a tweetstorm. So here we go! (1/10)
As we @FJLabs start to think about our next fundraise, I wanted to learn about the VC opportunity fund product. I was shocked to see that no one has really written about them! So @skerti820 and I decided to canvas the ecosystem. (2/10)
We surveyed 30 VC managers from seed to pre-IPO, and 10+ LPs to understand opportunity funds and best practices.

But first, for some context: Startups are staying private longer than ever before, at sizes larger than ever before.
- Avg length of time from founding date to IPO has doubled to 12 years in the past decade
- Valuations have ballooned in size. In 2020, there were 22 $1B+ valuation tech IPOs (that’s up from just 3 back in 2010!) (4/10)
This presents an interesting dilemma for Seed funds, who often reserve 1-2X their initial investments for follow-on capital. What do you do if your portco reaches unicorn status and has way more room to run? (5/10)
Rather than letting these valuable pro rata rights go to waste or spinning up one-off special purpose vehicles (SPVs) for co-investments, managers can raise an opportunity fund: a separate vehicle meant for following on across late-stage portfolio breakouts. (6/10)
They are easier to administer and since they're diversified, they capture more value than ad hoc SPVs, which run a higher risk of losing LP capital and have to be spun up one-by-one. (7/10)
"Why not just raise one larger fund?"

Writing large, late-stage checks from one fund may lead to LP concerns on style drift (“We invested in you for Seed exposure!”). Providing LPs with two tightly-defined products can better cater to their needs. (8/10)
Opp. fund LPs are typically satisfied with returns of 2X Net MOIC and 20% IRR.

Focus on existing portcos, managed by same inv. team. More concentrated (6-10 investments) v. ~30 in Seed funds.

Often charge lower fees (e.g. 1/10%), sometimes only on drawn capital (9/10)
Very little public data available on performance to-date, but judging from their proliferation and the expansion of venture capital as an asset class, we suspect opportunity funds are here to stay! (10/10)

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