What is considered a Tier 1/2 VC fund?
Hi all, a lot of posts on here about how VC is only a good career at a “Tier 1-2” fund. What about the in between? Got recruiter inbound about a ~$1.5-2bn AUM seed / series A firm that just closed a ~$500mm fund. I’ve heard they have a good track record (~50 exits over 10 years) though it seems they don’t lead often. Not sure how risky something like this is vs emerging funds ppl mention on here but am impressed by them
Context - Currently at a 300mm growth fund and want to go truly early stage (love the qualitative analysis / relationships / technology and have a technical background). Anxious to go earlier stage but think I’d like it a lot.
Work in the industry (Europe), there is not a formal list, but there are companies with better "brands".
The framework I think more useful is:
- Fund size & dry powder, ie are you going to to have runway and the ability to deploy meaningful cheques, perhaps less relevant at early-stage (I work in later venture/growth).
- Quality of the investment team, ie track record, it is also important to understand who you will work in close proximity to here, eg if you are with a dud partner much harder to get ahead/learn.
- Fund track record and portfolio quality, are they good at what they do AND will they be able to raise further funds..
- Sector/focus alignment, are you motivated by what they invest in.
- Ability to win deals, ie how do founders/feeder funds perceive the fund.
As a side note, I think it is an interesting time to explore new/challenger funds. Many of the Tier 1/2 shops you mention are struggling with poor vintages, portfolio work and lack the agility to go after some of the opportunities emerging from the disruption the industry has faced over the last few years. But, like any role, you are taking on more risk, with the more established funds you get more safety from the brands - that said, this is an industry built on risk and bold bets, if you want to be truly successful find yourself a shop that sets you up best to build a track record.
Another European here and think it's tough to say. We all know who the clear Tier S are but after that it's almost like they're all the same. For example, I have no idea how to place idk Cherry, Notion, Northzone, Lakestar, Hedosophia... They all seem equally good in different wrapping. But like above says if they've raised say more than 3 funds, led rounds, have couple of cool exits I think it's going to work out. Do your dd although don't think you can be too picky in this environment.
Yep definitely know it’s not a market to be picky, seeing that as well. Thank you so much for the thoughtful response
My (potentially hot) take after 2 years in the industry is that "Tier 1-2" = funds that lead generally lead rounds, take board seats, are on fund 4+, and have kept fund size constant to growing. 1 vs. 2 (outside of the obvious outliers of Sequoia and Benchmark) mostly comes down to branding: Tier 1 = you've probably heard of it even if you aren't in tech; Tier 2 = you haven't heard of it if you're not in tech and have probably heard of it if you are. Grab bag of what I'd consider Tier 1/2 names: Accel, a16z, BCV, Battery, Benchmark, Bessemer, CRV, Emergence, Felicis, General Catalyst, GGV, Greylock, Index, Insight, IVP, KP, Lightspeed, Madrona, Menlo, NEA, Norwest, Redpoint, Scale, Sequoia, SignalFire, Spark.
This of course isn't to say that newer or smaller funds or funds that don't lead rounds don't return well or aren't incredible places to work, but when you get into smaller / newer / recent spinouts (few random ones: BTV, Conviction, Equal, FPV, Tusk, whatever Tomasz's new fund is called, Virtue, Zetta etc. [yes there is a big quality variance here, I know]) even if they're performing incredibly well it's hard to bucket them alongside firms that are much larger or have been around much longer.
Totally that’s been my take too!! I think the obvious issue is uh it seems near impossible to get into those places (especially in this environment). I actually come from a non tech IB background (more like industrials) so it’s surprising I’m here to begin with. But hey who knows I should probably shoot my shot there and just see!
taking myself off anon, feel free to DM me to chat if helpful!
"Tier 1" venture firm is totally subjective, though I'd say generally there's a set of firms that are considered top brands by the majority of the industry, founders, and LPs, based on brand and track record. I'm probably missing a few, but the firms that are top of mind as "top tier" today include: A16Z, Accel, Bessemer, CRV, Coatue, Greylock, Kleiner, Redpoint, Sequoia, Benchmark, Lightspeed, General Catalyst, Index, Menlo, IVP, USV, Founders Fund.
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