In April 2021, I started the world’s tiniest venture fund. In the next few months, I’m about to close “Fund 1” and open “Fund 2.”

My goal for my startup investments is to learn and to make returns that beat the stock market. The best way to learn is with small bets.

If you’re learning poker, you want to play at the penny table first. Same idea here.

These bets are small, but I want to run this professionally. So I think of my investments as the world’s tiniest venture fund.

Here’s how it works…

How Fund 1 Works

I need 35-40 primary investments in a seed/pre-seed fund like mine. That gives me enough diversification so that, if I’ve chosen well, I have a chance of hitting a unicorn.

Most of the returns in venture come from unicorns. I will almost surely need to hit one for this experiment to work.

If I invest about $140k, I can get into around 35 primary investments. Then, I want about the same amount for follow-on.

In total, Fund 1 is $280,000.

What Happens When I Close Fund 1

So far, I have 33 primary investments. I plan to invest in 3 more companies for a total of 36. Then, I will close Fund 1 to new primary investments.

From that point on, two things will happen:

1. Fund 1 will only do follow-on investments in the most successful companies. I’ve already done a few of those and plan to do several more. This follow-on period will extend indefinitely, until I’ve deployed all the follow-on cash. That should take a further 2-3 years (a total of 6-7).
2. New primary investments will come out of Fund 2. Fund 2 will work pretty similarly to Fund 1.

I expect to close Fund 1 in the first half of this year. But it could be sooner or later. It depends on how many great startups I see.

I will have taken around 4 years to do all the primary investments in Fund 1. That’s on the slow side. The average fund takes 2-3 years, and 5 is usually the limit.

I’m in no rush. I want the best.

How Fund 1 Is Doing

Venture capital is a game of outliers. And already, several companies in Fund 1 have distinguished themselves.

Here is the leaderboard so far, by annual revenue run rate:

• $17 million
• $12 million
• $8 million
• $7 million

Overall, the fund is up 2.3%. This number is not very meaningful right now, since it’s all on paper. You couldn’t realize any of these gains if you tried.

However, it shows some good progress. Most funds nearly 4 years in are in negative territory. Indeed, I expect this fund to go negative as well in the next few years before the big winners (hopefully) start to break out.

It has helped that so far, only 2 companies have shut down. That’s pretty amazing given the early stage I’m investing at.

But the most important thing to focus on is that revenue leaderboard. That shows which companies are beginning to break out. And that’s where the returns will be.

Where Did This Money Come From?

These funds are all my own cash. I do not accept any outside investors for Fund 1, nor will I for Fund 2.

In the future, that may change. But first, I want to learn this game with my own capital, not someone else’s. I would not feel good about running a crazy experiment with someone else’s money.

Wrap-Up

I started investing in startups during COVID. I did it mostly because I was bored and curious about angel investing.

It wasn’t really about making money. That said, these investments have to make money. Otherwise, I won’t be able to keep doing it.

I committed to myself to do this for 10 years. Then, I’d see if I was any good at it.

Now I’m almost 4 years in, and things are going well so far.

There are no guarantees in life. But win or lose, it’s been a heck of a ride. I’ve learned a lot and met a ton of fascinating people.

Here’s to meeting more!

More on tech:

How to Get Started Angel Investing

Lessons From My 3 Most Challenged Investments

Learning From My Top 3 Investments

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