Jim Andelman, co-founder and managing director at Bonfire Ventures, was fortunate to have experience fundraising before he joined forces with his partner and began Bonfire’s first fund. In a candid conversation with Ben Black, Jim shares how that first fund progressed, and how they’ve been able to retain many of the LPs they worked with from the start.
This interview has been lightly edited for length and clarity.
Ben: Tell us about your background and about Bonfire Ventures.
Jim: Bonfire Ventures is a tightly focused VC firm. We only do B2B software, and we are typically leading a first priced round called series seed. Our goal is to be the founders’ first call when they have a question or are wrestling with an issue. That’s not something you can mandate in docs, that’s something you earn with trust, expertise, and responsiveness.
Ben: So when did you first start Bonfire, and how did it come about?
Jim: I'm a glutton for punishment, so I actually founded two different micro VC firms. I founded my own firm called Rincon Venture Partners and had three funds under that banner. Bonfire is effectively a merger of two predecessor funds: I founded Rincon and joined forces with a friend of mine named Mark Mullen, who founded his own firm called Double M Partners. We each independently developed a very similar investment focus, and we were each other’s most frequent co-investor from 2012 to 2016 when we officially decided to team up.
We joined forces very deliberately, because I think VC is actually executed better as a team sport. There are many very successful solo GP funds out there, but for me personally, it’s helpful to have a sounding board, the diversity of opinions, to have someone else with a different background and experience base that can recognize blind spots that I don’t recognize and so on. I also knew that I would enjoy life more with a partner and a team because VC, even when you do have a partner and a team, can still be a reasonably isolating activity. I mean, once you get busy, you have your companies, and your partner has their companies and, and there isn’t a lot of slack capacity to just catch up on other stuff your teammates are doing.
Ben: Let’s go back and talk about fund one. You guys decide you’re going to get together, and you guys had a track record independently. How big was the first fund, and how big was your first close?
Jim: Let’s talk about Bonfire and let’s also talk about my second Rincon Venture Partners fund, which was my first institutional fund. We had the benefit that some investors gave us credit for the three prior funds we’d managed. Some didn’t, and said, “you’re a fund one, and we don’t do fund ones.” Some said, yes we do fund ones, but you two have never worked together before, and that’s a risk we’re not comfortable taking, so let’s keep in touch.
So, to be specific, Bonfire I had a $60 million target, and we closed it at $63 million. It started with a two-person investment team: Mark and me. Then, during Bonfire I, we added a venture partner, Brett Queener, who became a full partner subsequently, as well as a principal named Tyler Churchill. We’ve since added another principal named Jen Richard, so we now have a 5-person investment team and a 6-person team overall.
Ben: Talk to us about the makeup of your LPs in the fund one and how did you find them? Essentially, how did you build an LP base?
Jim: The how — is ask everyone and anyone for intros and referrals. It is very easy if you are a startup to go on NFX Signal or Emergence’s VC CRM, or go on Crunchbase, Traxcn, or PitchBook and find a list of VCs to help you find which are in the Bay Area that do seed and your type of business. The LP world is much more intentionally opaque. A lot of these people don’t have a LinkedIn profile. Our main sponsor at Cambridge Associates is very accomplished and has no online footprint at all. And so it’s harder to do outbound, and therefore tends to be referral-based. A great referral is from a manager (LP word for a VC) who is routinely oversubscribed. They are the ones who are most willing and interested to share their LP relationships. And generally their LPs are very happy with that fund’s performance, and so that’s the best intro. Essentially, you just have to be willing to make the ask.
Ben: I’m terrible about asking people to introduce me to LPs. How do you do it in such a way that you don’t burden people too much or make people feel like they are obligated? The hit rate when I introduce GPs to LPs is really low, no matter how well you do, so, how do you manage that?
Jim: It’s really hard to get net new LPs, even when you have an established franchise or mini brand and have great performance and good referrals. We were very fortunate because one of our anchor limited partners in Bonfire I is the Foundry Group. They brought on Lindel Eakman who was at the University of Texas and developed a very successful venture portfolio there. Additionally, the partners at Foundry Group, Brad, Seth, and the crew, had been making commitments to seed funds and mentoring managers, which is part of their give-forward mentality. They eventually realized that their help could be more organized, and it could be a product in their offering within their set of offerings. So they formalized that by raising a bigger fund and allocating a portion of it to seed funds. It’s a cohort of funds that we feel very fortunate and grateful to be a part of. Lindel and Jaclyn and the other partners at Foundry were extremely generous with introductions as we raised our most recent fund, Bonfire II. And it really went great, as we hit our hard cap. We were raising $80 to $100M for this new fund, and we ended up closing it at $101M, and we got four net new meaningful institutional LPs.
Ben: Wow. So, you mostly had people coming back for more?
Jim: Yes. Again, we did a good job with fund one. Each of our largest LPs in Bonfire I doubled their commitment to fund two. I think the one main element of doing a good job is doing what we said we would do, and this might be the slide you liked.
Ben: Yeah it is! I have put it in my 10 favorite slides, and we absolutely have stolen it. Can you describe the slide?
Jim: Think of two rows of tiles on a slide. The top row of tiles is what we said we were going to do when we fundraised, such as, what was our average check going to be, what was our average ownership going to be, what sector were we going to focus on, what was our pace going to be, and so on. Then the next row we have what we actually did. And, you can see we were spot-on following through. I mean, you don’t always have that luxury because conditions change, such as right now when valuations are pretty fundamentally different in B2B software land, and so we’re running a little hot on our entry price. But, the institutional LPs all recognize the nature of the landscape, and so maybe there’s a little variation there, and that’s the basis of a conversation.
So, number one, we did what we said we were going to do. We delivered to them the product that they thought they were buying, which is important especially in advance of performance, which can take longer to show up. Those are the two aspects of a good performance, which is doing what we said we would do, and the businesses in the portfolio doing well.
Ben: Were there any ways that you found new investors that are counterintuitive, things you’d never thought of, or ways that you ended up finding new investors that you wish you had known before you started?
Jim: There is so much randomness, like unbelievable randomness. And sometimes, you don’t know until the very last minute which ones are going to say yes and which ones are going to say no. There were a few that really seemed like a slam dunk to us that were really eager and leaning forward early in our process. And then they just sort of trailed off, and we don’t know why. There’s a lot of things we don’t necessarily see and LPs don’t necessarily show either. I mean, there are some big categories in the LP base. There’s high net worth, and those are most often the sponsors of emerging managers. But, I would think the sweet spot for us, and a lot of the firms that are a part of RAISE are family offices, single family offices, or what we’ve called the institutional family office.
Ben: I use the exact same phrase. If I compare the world today to the world that you and I started in, today we have this really large number of these institutional family offices that we didn’t use to have. These offices have their own investment teams and act just like an institution, and many times, they can even write checks. Did you have a number of those in your first fund?
Jim: Absolutely. In what I would call our first institutional fund, the largest LP there was exactly what we’re describing, which is a self-made billionaire and his son devoting their attention to private investment portfolios, both funds and direct investments. They employed a team that deploys VC on their behalf. We connected via an intro from another VC, more specifically, Steven Dietz from Upfront, to whom we’re forever grateful. It’s actually funny, because at the time, Mark and I were separate and Steven introduced this family office, Dire Capital, to a bunch of the LA VCs, and the two he chose to invest in were Rincon and Double M, Mark’s and my funds.
Ben: Talk to me about how you got coverage. I have a specific story that inspired this question. I was once fundraising in Pittsburgh, and I saw that you were also there and so we connected. You told me that you were meeting with nine different groups in one day. And I thought, how did you even get all those meetings? It was incredibly impressive. So I’m wondering about, tactically, how far did you go? How many firms did you have to talk to? I was so incredibly intimidated by the number of meetings you had in the same city that I went to and got nowhere. And so I’m just curious how you did it.
Jim: We didn’t necessarily leave that city with commitments though. But it was really just maintaining a list, which is our horrible version of a CRM. It’s a Google sheet that we all collaborate on.
Ben: That makes me feel better that you’re using Google sheets because we are too.
Jim: We probably have about 150 institutional LPs that we should be doing a better job maintaining a relationship with.
Ben: So you’re doing the LP farming: just talking to the LPs all the time.
Jim: Yeah. The hard part about that is there’s always good news around the corner, and it’s always tempting to just wait for that next piece of good news, so you can deliver it. We say that we should never just check in, but instead, deliver news. This is advice I give to founders too. When they are developing a relationship or even in a fundraising process with VCs, never just call or email to check in, call or email with news that demonstrates that you’re better than you were last time they talked, and you’ve made progress. It’s shoe leather.
Ben: For your $63 million fund, how many pitches did you have to do?
Jim: A hundred or so. Mark had an LP base and I had an LP base, and it overlapped with one entity, and they doubled their commitment, which was great. In part of my diligence, I told them, hey, I’m thinking of teaming up with Mark Mullen, what do you think? And he said, I think that’s such a good idea that I want to be your biggest LP. And now they are our biggest LP, and they’ve been a wonderful partner to us.
Ben: All right, last question. Somebody starting out today, given where the market is with a huge proliferation of new venture capital firms, and they have to build an LP base. What advice do you give them?
Jim: A couple of pieces of advice. One is, get started with whatever you can get started with. I think the fundraising activity is one of storytelling. It is much easier for an LP to say yes to something that is more concrete rather than less concrete. Before you’ve made a single investment, it’s a blind pool. They don’t know what you’re going to invest in, so you have to show what you’ve done. If you’ve made only three investments that are going to be a part of the fund, you’ve got three great case studies and stories to tell. A piece of advice is to get started, however you can. Maybe that’s on a warehousing deal where someone will front the money and then contribute if and when you hit a certain amount. It might be a small first close. It might be your own money where you’re contributing some assets. (Quick sidebar: don’t mark up those assets and contribute them at a higher value than your cost, then you just look greedy.) Think bigger picture, long-term, if you want to be building a firm and not just raising a fund, that’s what LPs are looking for, so that is how you have to behave.
And then, hopefully there are VCs who have had a good experience with you, either as an angel investor, an operator, or as another VC, if you’re spinning out of a firm or something like that. How you treat people and your reputation really matters. That has been the greatest source of all of our referrals, which is people that we worked with at the board level, had a relationship with, knew that we were good, believed that we were good, and were happy to share their relationships with us.
Interested in learning more about the fundraising process? Request an invitation to attend the RAISE Global Summit.
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The Tipping Point Series (“Tipping Point”) is a collection of interviews with fund managers who (a) have previously raised a venture capital fund and (b) are providing advice and insights into the formation and management of venture capital funds (the “Presentations”). Tipping Point is not an offer to sell or a solicitation of an offer to buy any security issued by any venture capital fund, including without limitation, any venture capital fund managed by Tipping Point’s speakers, presenters, or producers.
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