Every first-time VC fund manager going out to raise money has a pitch deck saying they have found an entirely unique investment strategy that will give them an edge.
But according to Michel Geolier, who previously invested in VC funds on behalf of the Siemens’ pension fund, they usually all look pretty much identical.
After 100 meetings and pitch decks everything is the same — it’s a bunch of guys who went to the same kind of school and have the same kind of background.
“After 100 meetings and pitch decks everything is the same — it’s a bunch of guys who went to the same kind of school and have the same kind of background, doing the same thing and saying the same thing,” he says.
That frustration led Geolier (himself a business school graduate) to launch Betterfront, a tool designed to make it easier for VCs to convince investors to back their funds. Today it's announcing an (undisclosed) seed investment round from German fund HTGF.
But how does Betterfront work? And will it really help first-time fund managers cut through the noise?
Deal-by-deal data
Munich-based Betterfront hopes to present investors in VC funds (the limited partners — or LPs) with the information they really need to decide whether or not to invest, offering more granular information than they usually get.
“It’s deal-by-deal data: which fund invested in which deal, who led the deal, who sourced the deal, do they have a board seat, what was the valuation when the company entered the portfolio, what is it today, what ownership does the fund have today,” explains Geolier.
This helps LPs figure out how pivotal a role the VCs pitching to them played in some of the successes they claim. “The more data the better.”
“LPs really want to understand performance. When you look at a SaaS company you have all these metrics; when you look at a fund it’s the same.”
Betterfront’s software won’t tell some LPs anything new, but many are investing into venture capital without any real expertise, with limited resources or alongside several other asset classes. It could at least save them time, says Geolier.
“It’s mostly useful for institutional LPs who know the asset class well enough, but don’t have enough staff to really spend time on it — family offices, endowments, small pension funds,” says Geolier. “It’s not for the Hamilton Lanes.”
Clinching customers
“VCs underestimate how much competition there is out there,” says Geolier. Since 2014, the number of first-time funds in Europe have tripled in size, while the number of VC funds closing in Europe has increased every year since 2015.
VCs underestimate how much competition there is out there.
Plenty of VCs heading out to raise a fund never succeed, while closing a fund can take others years. “When I was an LP, the average VC team was fundraising for a year and a half — we want to shorten this.”
“They overestimate the responsiveness of LPs — it’s hard to get their attention.”
Betterfront currently has two VC customers. One is a new firm (but led by experienced investors), which will announce its first fund in a few months’ time; the other is an established firm raising a follow-on fund.
For now, Betterfront is focused on helping VC firms close funding rounds, but in the future it wants to also help them manage their relationship with LPs on an ongoing basis.
Our vision is to be the single interface between the LP and the GP.
“Our vision is to be the single interface between the LP and the GP,” says Geolier. That means replacing the quarterly email updates and spreadsheets in data rooms most VCs share with their LPs with a platform which both sides can use to track the fund’s performance at any time.
“When I was an LP at Siemens, say I was managing 20 funds — that meant I had to go onto 20 data platforms, log in, download the documents I needed every month, and then go to my own system, take the data from the PDF I had downloaded and add it to that interface,” he adds. “That’s a terrible experience.”
A lot of attention is paid to the ‘experience’ VC firms give to the founders they work with — but smart firms pay an equal, if not greater, amount to their LPs. “If you want to be one of the best firms today, it’s not enough to do the best deals but also create the best experience for your investors.”
“If you don’t have a good relationship with LPs, you don’t have a business.”
Beyond venture
Beyond venture capital, Geolier says Betterfront could be used by other forms of alternative capital — real estate, credit, private equity and infrastructure. “They’re different asset classes, but they work the same way.”
Market leaders eFront (acquired by BlackRock in 2019 for $1.3bn) and Intralinks (acquired by SS&C in 2018 for $1.5bn) also provide VC firms and other alternative investment professionals with reporting and communication tools — but they cost hundreds of thousands of euros, says Geolier. Betterfront sets firms back several thousand euros per year. “It’s a big price tag, yes,” he admits — “but we’re super cheap compared to the big ones out there.”
If you’re really serious about [raising a fund], you have to go all in — and have the budget to do it.
It’s also not such a big price tag for a VC firm, he adds: “If you’re really serious about [raising a fund], you have to go all in — and have the budget to do it. To pay for lawyers, admin fees, Betterfront… let alone an office and people.”
“It’s a problem — it means only rich people can go into it and it’s why we don’t have enough diversity in the space.”
For VCs that flinch at the price tag, Betterfront plans to offer them the software for free until they reach their first close. “Then, once they have capital, they can pay the bill,” says Geolier.
