E82: Fundraising in Bear Markets: How Nichole Wischoff Closed $50M [How I Invest]

0:04Today on Turpentine VC, we're excited to drop an episode of David Weisberg's podcast, How I invest. The podcast features interviews with the world's leading institutional investors, including pension funds, endowments, and family offices. David has hosted conversations with the top limited partners in the world, including the Ford Foundation, Northwestern University, and CalPERS, as well as the smartest investors in the venture ecosystem. Up ahead is his conversation with Nicole Wischoff. Please enjoy the episode. Nicole, you pulled off a$50 million fundraise in one of the toughest markets the summer of 2024.

0:41How did you accomplish this? In terms of strategy, going out in March, telling LPs, I guess I was sort of bluffing, but I believed it, that I would have a first close and ideally on 50 % of the fund around the May timeline and was aiming for a final close in August. And crazy enough, maybe I manifested it, but it worked out. So, Sandana came in, anchored the fund, and it was off to the race within five months end to end. The other piece, and then I'll pause, is just having a good product, right? So, there was some data that came out that was just showing like median IRR and metrics for funds from the 2021 vintage and 22, both of which are my fund one and two.

1:23And we're top decile, right? And we had some early markups in fund two. So, the product is also great, right? And our distribution has really taken off. So I think there obviously you have to have something that people want to invest in. One part is just the strategy around like how to raise because it's frustrating and time consuming. And the other is, do you actually have something people want, which was the real test? And it turns out that that we did. When you say you have a distribution advantage, what do you mean by that? So one piece that's been really important for building the firm is obviously brand building.

1:51There's a lot of competition, several funds. So assuming we had the pieces right to even be in business being, how do we actually help founders to do this job and why would they choose us? I have a really deep operating experience. So I was very fortunate to be very early and only work with CEO co-founders of three now very sizable companies. And so with that, every ton of venture capital, I've built a ton of products, I've hired and fired and figured things out. So having all of that as sort of table stakes to hopefully getting started in venture, the most important piece is how do you continue to have access to great companies?

2:24How do you continue to have the right to win and then concentrate in those companies? And so we have been from day one building up the brand, Twitter being like a core part of the business, but also LinkedIn and TikTok now with the podcast. And ultimately, it's how many people follow us, know who we are, and we'll pick up our call. And the answer is a lot. So that has been a huge core focus for the brand since we started. And double click on that. How does media help you win deals? Ultimately, I can get on the phone with anyone. And I really saw that. That took about two years. And then I want to say about a year ago now, early 2024, I remember there were founders that had term sheets from super notable funds.

3:06I typically try not to chase those deals, but I really liked the business they were building. I love their background. So I remember sending a note on LinkedIn and just saying, you know, like, hey, team would love to meet. I know I'm pretty late in the process, but let me know if you have time. And it was and since then, in any situation like this. Cold message, they respond at 100 percent of the time. It is Nicole. I've been following you on X for a long time. You're a hustler. I would absolutely love to take a call with you. We've got 500 K left, even though there's a lot of interest. Do you have time tomorrow morning?

3:37We have earned that right. Cold message. And now I would say that that's probably a response and a quick response time, like almost 100 percent of the time. And that is to get on the phone with just about anyone. So that is what you get from the socials. And that also translates into closing as well. 100 percent. It's a warm relationship. They feel like they know you. And so it's not like going up to someone like at a random coffee shop and like trying to like get them to take your money, you know, even though that's normally what a first call feels like. So it feels like we skipped that part.

4:06What's the limits to that scalability? Would you be able to deploy that into$5 million checks,$10 million checks, or does it only work on small checks? So far, we are proving that we can increase check size. And, you know, I think that hopefully everything else adds out of, OK, Nicole, we want to work with her, but what does she really do? So, right, even though I get on that first call and they love the brand, the next question just becomes like, and I transparently haven't been asked this in a few years, but I don't often get the question anymore from founders like but but why should we choose you which is good so it means some things are working a lot of it is also references like i will have i'm trying to win a deal some of like my existing portfolio founders like call in and say hey you should really work with nicole she's been fantastic for us so that's super helpful um i'd say look so far fund one our average ownership is 0.7 i think our average check was around 150k that was the five million dollar fund fund two our average ownership right now is 4.7 our average check size is around$650K.

5:04So we're swinging pretty, like, you know, with smaller checks for around 5 % of companies. We've easily been able to do that, no question. I think as we get into the $50 million fund strategy, leading and co-leading most of the time and riding up to, let's say, $2 million checks, we will see. But so far, the model has been working. Was that your biggest objection when you met with LPs and raising a$50 million fund? No, actually. I'd say the biggest reason people pass is that the fund size was small. So I was really trying to go more institutional and a$50 million fund is very small for folks that need to write$15 to$25 million checks.

5:40I would say that, you know, I had, Sandana, my anchor, gave me an interesting exercise and I ended up sharing this with a lot of my other LPs, which was, hey, Nicole, if you could layer on top of your fund two positions to date. So of the 12 to 14 companies you've invested in and your check size and fund two, which was six, let's say 650. If you layered on your fund three strategy and went back to those companies, which of those companies do you think that you could have successfully deployed that bigger check into versus not? And it was a great exercise. And I think it ended up being that I would have gotten probably closer to eight and a half, nine percent ownership.

6:16And then they referenced every single one of my companies. So they validated that. Like, you know, they probably didn't say Nicole says she could have put two million in, but it was a good exercise. And I shared that with every LP. You went public with your process and your funnel. So walk me through that at a high level. So out of the gate, I did what I recommend my startups do, which is get every investor in the funnel at the same time. And so out of the gate, I set up 80 calls out of the total 108 first calls. So I think the pipeline was between existing and folks I already met prior to raising.

6:46That was 80. And so within the first three weeks of the raise in March, I had several calls a day, like seven to nine, I think, was my max, some 45 minutes, some an hour. And I wanted to get everyone in the data room at the same time. I wanted them to know that that was the goal of the May 1st close, the final close in August. And so that was what I stuck to. Again, no idea if that was going to work out, but I put my head down and that was what the expectation was. In reality, it took to get to 50 percent raised and closed that two and a half to three months. And then from there, that remaining 50 percent of the funds of 25 million took 30 days.

7:23I can speak more to that. And then the final month of that. So let's say we were four months in was really just legal back and forth. So red lines on the LPA, getting docs signed is honestly tons of legwork and actually really expensive from a legal perspective. But that took up about like a month of it. So of the 108 calls, 28 committed. So we converted about 26%. I don't have benchmarks for other funds. I don't know if that's great. I don't know if it's terrible. It worked for us. It's a good number. We got it done. an interesting stat 38.5 million of the 50 million are from six LPs so we really have like four or five five million dollar checks and then one 15 million dollar check and then the rest are two million one million and then a very very few existing LPs that really wanted to come back in but I've outgrown that wrote 500k checks how did you get people to commit to the first close so quickly.

8:20In other words, what was your forcing mechanism for getting the first 50 % in? So that's a really good question. All existing folks, I think there, so there were a few folks in there, specifically single family offices that I had really gotten to know that missed fund two that said, Nicole, no matter what, like when you start raising, we want in for a million. And so that was three checks that came in. Was this after your fund two was closed? Was it at the tail end? They couldn't get their diligence? Why did they miss Fund 2? It was closed. They saw, I think, some press and they're like, we really want to meet Nicole.

8:50And like, is there any chance you can increase the$20 million fund size and take more capital? And the answer was no. And so we kept in touch for two years. And so whenever I kicked it off, they were very quick to say, send the docs like we're in. We stand by wanting to commit a million. And I catch up with folks. I try to at least two to three times per year. This is a relationship business. So for the folks also, I really like I wanted to spend more time with them. So I was really determined to building those relationships. So May 1 is a really important date. And I tweeted about this. So when I kicked off in March, I had probably, yeah, close by May 1.

9:30So in that first, let's say two months or until May 1, March, April, almost, gosh, that's, yeah, a little bit. So over two months in, I had commitments, like, you know, verbal commitments, people were in for just shy of$10 million. And I kept saying, so I had, Sandana had anchored fund one and two, but they took a little bit to let me know. So I told all LPs, listen, I expect half the fund to be reserved for existing investors. And so Sandana, I'll never forget, calls me on May 1, and I was nine months pregnant. And they said, Nicole, we're in, we're in for$15 million. And our only ask of you is that you cap the fund at 50 instead of 60.

10:09As I mentioned, back in October, I had floated a$60 million fund cap to existing LPs. And so they ended up coming in for 30 % of the fund. I was like, of course, I'll cap, you know, I'll cap the fund. I ended up being way oversubscribed and they would not budge. But that was, you know, that was the process. And so I had already had, again, I said the 10, they came in for 15, we're at 50%. I raced to a close, you know, three weeks after that. So I I emailed, I got great advice, which I think we'll get into, which was send little drip campaigns, you know, the existing LPs, send them little drip notes saying, hey, here's the progress over the last two to three weeks.

10:49So they feel like they're close to it, that the timeline seemed tangible again, back to when this closes, not if this closes. And so on May 1st, when Thandana called me and they committed and I knew I was going to have that big first close, like I hoped and manifested. I emailed every single person that was still in the pipeline and just said, and again, this is a good forcing function, too. And I even recommend my startups do this. People will hang around the hoop and largely because they're just not interested and can't get there. And you need to sush that out as quickly as possible and move on.

11:20And so I emailed every single person in the pipeline and just said, hey, here's the update. huge first close on 50 % of the fund. We're still marching towards mid-August for a final close. Let me know if you want to catch up. 25 % of people who ended up passing or maybe 30 passed because of the timeline. Some I just wasn't a big fit for. And then the other big reason why people passed were because the fund size was just too small and their checks were too big for the fund, which I also appreciate. I don't want a$25 million check for a$50 million fund. So those were a few of the reasons. One was just the tight timeline and two was the fund size.

11:55How do you suss out who's actually interested and who's just hanging on the hoop because they don't want to say no? So I guess what isn't fair, I guess, for LPs is that they do have their own internal timeline. And so it is a balancing act. Sometimes they are not hanging around the hoop. They are actually hoping that they have another 60 days. And so in some cases, I've had LPs say, hey, Nicole, they work on like quarters most of the time. And so they're like, hey, Q3 is not great for us. If this goes into Q4, we're very in. And so a lot of them were hanging around the hoop, hoping that this would hit like an October 1 timeline and we'd be a Q4 investment.

12:31And so a lot of them, when I was getting closer and it was directly within like the August timeframe that I had hoped for, they had to pass. And people communicate that. Or if they try to gatekeep their timeline because they don't want you to write them off, then they're kind of, you force their hand. And so a lot of it was just saying, hey, we're still marching towards this. Do you want to catch up? But eventually they just let you know. I'd say by the third touch point, they give you an answer and it's really helpful. But you kind of have to force. I mean, again, sometimes they do convert. It just depends on their timeline and your timeline.

13:02Is it fair characterization to say the top quartile LPs are very independent when it comes to their decision making and some of the other LPs are looking for signals? Sometimes it's hard to read through the lines. And so I actually don't know that it dictated much. Like, I think, you know, even when I closed my first institutional, Children's came in and I circulated a note and said, hey, we're now at 35 million. We're almost finished or 40 million. It didn't rush anyone's process, which just told me that if they're going to come in, they're going to spend time with you from the start. And even if there's not a lot of early signal and if they're not, they're not.

13:35But I maybe a few single family offices get excited and they try to follow great LPs and I don't blame them. But I honestly felt like there was no carrot that I was hanging that got people in or out, even if it was new news on LPs. Hey, we'll continue our interview in a moment after a word from our sponsors. Hey, everyone. Eric here. In this environment, founders need to become profitable faster and do more with smaller teams, especially when it comes to engineering. That's why Sean Lanahan started Squad, a specialized global talent firm for top engineers that will seamlessly integrate with your org.

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14:43Squad takes care of sourcing, legal compliance, and local HR for global talent. Increase your velocity without amping up burn. Visit choosequad.com and mention turpentine to skip the wait list. You mentioned that one endowment told you that they have a 12-month policy before they could even invest. They have to know you for 12 months. Tell me about that. That was the only time I've heard that. I will say, though, and I don't know if it is fair to say that this is all endowments. I do know, you know, I was talking to a few other funds that got a few LPs and then they said, Nicole, we closed them in four months.

15:16It was just a really tight or got to a commitment in four months and then legal takes like another two. I don't know that it's that common, though I will say endowments are just a different beast. I don't have, candidly, any endowments as LPs yet, though I've been getting to know several for the past, you know, a year and a half or two years. I find that in a lot of cases, either my fund size is too small, like think a Yale or someone that's huge, or a lot of what I experience is that these endowments are trying to get exposure to emerging managers, but they have never invested in one. And so it's a lot of phone calls, but no one's converting.

15:52But I don't think that's just because of my fund. I think they're just not writing checks yet and just assessing the market. You got a lot of help from other emerging managers like Charlie Ma and Byron at 12 Below. Tell me more about that. Look, we are all incentivized to help each other. And we're thankfully not all raising at the same time. But a few things. One, it didn't dictate. So I would never dictate when I'm going to go to market to raise a fund based on feedback from other GPs about the timing of the market. And actually, thankfully, I didn't do that because I feel like 100 percent of the time over the last three years, GPs say it's a bad time to raise and it is a bad time to raise since 21.

16:29And so you can't let that dictate when you go to market. Ultimately, when do you need the capital is when you should go to market. Again, as I said before, if I could have taken 18 months, I didn't want to be in a position where I didn't have capital to deploy. And so I went out earlier. And then from there, I did the around the world and I called everyone that I knew that had raised and closed a fund in the past six months. And because that's usually a good benchmark for the market is, including, you know, Charlie and Madi at Pathlight and, you know, Byron at 12 below and just said, you know, walk me through your raise.

16:59I want to better understand like the process, you know, who is active. So something that at least I do with other managers, I'm not sure how common this is outside of my little bubble, but we all usually will share a spreadsheet and say, hey, here's everyone I've met with. Here's everyone that has converted in our LPs. Here's everyone that you might actually be a great fit for because they're looking for A, B and C. And so a lot of us try to just share, you know, who are the like the LPs that are active? And frankly, who are the ones that waste your time? there are folks that are just not active that are out there they want to talk and then they maybe want a lot of things from you like they want to direct invest in some of your companies and they you know just there's some bad actors it's not that common but when you're raising a fund you don't want to waste any time and so like the guys i mentioned were all extremely helpful in saying hey nicole here are the top five institutionals if you want to go institutional that are looking at emerging managers we are one they came in they have more exposure this year that we think that you should meet and we always help each other.

17:56I mean, it's one, I can do the same for them. So I'd say every time I get one of these lists, there's probably up to maybe 35 % overlap with LPs. So that's not crazy. There's still a lot of open relationships to build and that goes both ways. So when Charlie and Motti get ready to go for their next one or Byron, I hope they do call me and say, hey, Nicole, who should we meet? But it's really common and it's very helpful. And how did you build these very trusted relationships? I think a lot of people would love to have these kind of relationships. I've taken a very community driven approach to all of this.

18:29Like, I think it takes a village to get a fund off the ground. And I think it probably takes one to run it. It's just different needs. Ultimately, you are your network. And so I wanted to start dipping my hands into different networks and working with people that, one, are awesome. So I really, I mean, there's plenty of fund managers I've met that I was like, we, that is not a relationship I want to build. and there are ones that I just deeply care about. And so for me, it's really natural. Like I want to hang out with Charlie and Maddie, even if it's unrelated to the fun. Do you know, like I've invited them to my birthday party?

18:58Like, and so who are the people I want to spend time with that I can learn from that? And also things are give and takes outside of its business, right? So outside of helping each other on the fun stuff and as great emerging manager group chats, we're all constantly some of the best early managers. I would say some are now far from emerging and they have emerged. but that are always talking about like you know who do you use for legal on this or how do you think about opportunity funds like we're all trying to help each other which is awesome i think the other part is also deals so if you want to meet everyone that's kind of either going to mark up your companies or co-invest with you and so how can i find like minds you know the charlies and moddies i've done deals with buyering at 12 below we were talking about a deal this morning and so you just you know keep the doors open and and really just kind of like just feed these relationships because they're really important do you find that there's an 80 20 aspect to your relationships like a small amount of your relationships drive a lot of your co-investors and a lot of the help on the fund yes i uh so lee fixell's a a mentor and a friend and i'll never forget i was probably two years into this i'm now three so i guess a year ago and when i first got started to cast a huge net you know i was like i am and i was all over the internet as i mentioned i was always posting still am and i started to try to do deals with a lot of people um a lot of fund managers that you know their names are splashing all the headlines like the up-and-coming gp you know whatever um and i wanted to meet everybody and i wanted to do deals with them and this this is like again very i think at precedency it takes a village on a cap table I think as you scale, you don't need as many funds.

20:35So in every round that is. And so started doing business with a lot of people. And you learn pretty quickly who you do not want to do business with. A lot of it is just their acumen with founders. Sometimes it's like from a sense of entitlement. But I've made introductions to my founders say like, how well do you know that person that call was like terrible? Or a lack of follow through or things that are really important to me. Like, you're going to get your shit done if you work with my founders, right? Like you're a reflection of me and these introductions are a reflection of me. And so I remember saying to Lee, gosh, I cast a wide net and I met like, you know, I probably 50 other fund managers.

21:10And I was like, is it crazy that the list of people I trust and want to work with is probably like eight of the 50? And he's like, no, absolutely not. He's like, I did the same thing when I was early at Tiger. And, you know, you cast a wide net, you meet a lot of people and then that list becomes like eight to 10. So that's happening now. And I'm still trying to add people in and maybe push people out. But like there's only a small group of people that you really trust. And that trust takes time. Yeah, almost literally 20 percent. So you've built up an enormous Twitter followers on a relative basis to VC.

21:43Walk me through how you built up your Twitter followers in the very beginning. Yes. So I was not on Twitter and using any form of social media outside of like Instagram personally, probably until 2021. So I raised my first fund while I was still operating at a startup. I just had my head down, knew all of the LPs and had great access. So I was like, great, let's do this. We had a$5 million fund. And I'm in a group chat with Aaron Frank, who is at the time like an amazing angel investor that fell into the deep dark side and started as a partner at Lightspeed. I say that in a loving way. And Alex Cohen, who's like a popular shit poster and now a founder himself on Twitter.

22:23And they said, Nicole, you just closed a$5 million fund. Like you're a VC now. Like you have to get on Twitter. And so I think I hard launched September 2021 saying, hey, I just raised a$5 million fund. Like, who should I meet? Again, and knowing nothing about it, I think a quick take to as I spent a few months on it was people are absolutely nuts. Like VC Twitter is unhinged, absolutely ridiculous. I'll get into what I really think about it. But and so my first tweet that really took off and I was like, wait, I need to like keep pouring fuel on this was I posted something I call like my first heater.

22:53I had maybe 200 followers and I said, can confirm it's 10x easier to raise a$5 million fund than to get 500 Twitter followers. And Alex and Aaron, Alex at the time had 100 ,000 followers. They retweet this and it totally takes off. I get to my first thousand followers. And after that, I can't really remember. I would say I think those first 1 ,000 are the most difficult. Is that a social proof aspect? Like you get to a thousand and now people take you seriously why are those first thousand so much more difficult it's human psychology i don't know i think you click into someone's profile and you're like oh they're kind of legit people i know follow them because if you have a thousand followers you have at least one mutual with almost like everyone second degree and so i think when they see that like there's at least one or two mutuals you become more legitimate i feel like that thousand just sticks out on twitter um and so that maybe that's just a personal take but it felt like that was the hardest and then after that like it felt like it was much faster to get to get going um i I think a few things, and these are, I don't know, hot takes maybe I'll regret saying later, but like VC Twitter is kind of broken up into like, I'd say like three different personas, like pending four, which maybe is the bucket I fall into.

23:57One, you have like the deeply insecure billionaires who argue with each other all the time. And then you have, I think, two, they're either associates or partners with like a tiny pea who just shadow the rich guys and try to be bullies on the Internet, who pitch the same book and call themselves contrarian. And then you have the like total sweethearts who are the partners who like know that building a brand really matters, but they're so uncomfortable posting online and they are way too afraid to look stupid and to be judged that they literally just post humble and honored to be a part of like series A.

24:26And then that's the Twitter feed. I'd say what is, I guess, totally like original and really interesting are the really authentic accounts. I don't know if I can like say that I'm a part of this, but maybe it's what I'm going for where I just don't give a shit. Right. Like if people and by that, I mean, I don't mind getting beat up on the Internet. What I like about Twitter is that people tell you you're an idiot and that you're wrong. And in some cases they're right. And that's refreshing. I learned something like I'll go rethink, you know, whatever it is that I posted. I have the courage to be myself, which I think is actually like the like very, very limited in the world.

25:03And so for better or worse, like I people follow me because I've been open and I've taken an approach that's I'm going to build this firm in public. I'm going to say what I think. I'm going to say that I don't really buy that there's a lot of money made in AI and I'll stand by it. And someone can point back to that and say, you know, she was wrong. The benefit of doing what I do and never working at a big fund is that I don't have like an issue with groupthink and I don't sit around at big firms and weekly partner meetings and get brainwashed by like the only things that the partners say can work at the fund.