Josh Kopelman on how to start and run an early-stage fund in a hypercompetitive market

Last week at the Upfront Summit in Pasadena, there was no shortage of glitz, from the venue (the Rose Bowl) to the catering (Wolfgang Puck) to the guest list (Ice Cube, Paris Hilton and John Legend, to name just a few). Still, there were also plenty of sessions that provided the investors and founders in the audience practical advice, including, notably, a session led by Upfront co-founder Mark Suster, who interviewed his longtime peer Josh Kopelman of First Round Capital.

The topic was how to raise a debut venture fund — as well as keep the whole operation afloat over time. The bottom line, suggested Kopelman, is that it’s a lot harder than it looks. Indeed, according to other investors at the event with whom we chatted, the seed and early-stage funding environment has grown especially brutal. As more debut funds have sprung up on the scene, more established firms have begun throwing elbows.

Part of Kopelman’s chat with Suster made its way around the Silicon Valley last week, when Axios’s business editor, Dan Primack, tweeted a part of the conversation about First Round’s accelerated deal-making pace. We were also in the audience and think other aspects of the conversation worth flagging, too, including how to establish a brand, how to think about valuations when they’re soaring out of control and how to approach institutional limited partners (or LPs) when trying to raise a fund.

Josh Kopelman of First Round Capital: we can look at every company we’ve ever funded, and learned that the time from first email/contact to term sheet has shrunk from 90 days in 2004 to just 9 today.

— Dan Primack (@danprimack) January 29, 2020

Suster first began by talking about the crowded market, asking Kopelman how First Round has adapted to the resultant pace of dealmaking.

The biggest thing you mentioned is that something that we actually measure is time for decisioning. We’re pretty data driven, so we use Salesforce, [and] we can go back and look at every single company we funded since 2004: the date of that first email with a founder, the date we signed the term sheet. And it’s fascinating. You just see sort of what was a 90-day process shrink to an average of nine.

So that just creates real challenges in terms of your ability to make high-quality and high-confidence decisions. We now have partner meetings twice a week, rather than once a week, because we want to be able to make sure that we’re communicating and talking with our partners in order to be able to, to be able to move quickly enough.

Also, just the proliferation of funds has made brands far more important. You know, when we started, there were just a handful of funds [including those of] Ron Conway, Mike Maples, Jeff Clavier. There were, like, six funds. So imagine if you walked into a Foot Locker, and there were six sneakers on the wall. That was it. You could just try every one to see what fits, which feels the best. [Now imagine] you walk into a Foot Locker, and there are a thousand sneakers on the wall. You’re not going to try all of them. You’re going to have to use proxies. You’re going to have to say, ‘I want the Nike.’ ‘I want the Adidas.’ You’re going to [pick out something] based on brand and that brand is based on persistency, so there are benefits. There are benefits to having been associated with [particular] athletes, in the sneaker metaphor.

And so it’s helped change a little bit the way we [do things] and led us to create things, like the First Round Review; it’s why our [annual] holiday video was so important to us in the first 10 years.