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Updated February 11, 2023Mckeever “Mac” Conwell (RareBreed Ventures)
Thea Messel (Unconventional Ventures)
Mac Conwell and Thea Messel have both achieved the monumental task of being able to close a first-time fund in an ecosystem that has historically said no to people from their backgrounds. Mac and Thea shared with us a little of their grit, determination, and work ethic in using everything at their disposal—including powerful tools such as data, research, and social media—to galvanize investors into their funds and begin investing in overlooked entrepreneurs.
Interviewed December 2020
Erika Brodnock (EB): Mac, regarding fundraising, Twitter has been a major aid in your journey. Why have you chosen that medium? How did you make it work for you?
Mckeever “Mac” Conwell (MC): So, historically, most funds are raised under 506(b) within the United States, which means as you raise your fund, you can’t publicly disclose the bets you’re raising. It enables you to take around 35 unaccredited investors, whereas the other investors traditionally have to be accredited. This is what I have always heard, that is what I have always known. I had never encountered another option. It just so happened that earlier in 2020, AngelList announced they were starting what they called “rolling funds.” One of the unique things about the rolling fund was the 506(c) designation. To elaborate further, investors could be publicly solicited, but each investor must be accredited to use their platform. They already had several credit investors on their platform making investments.
This announcement came at around the same time that my Twitter following started growing. In June 2020, before I started fundraising, I had around 2,500 followers. I have been on Twitter since 2009. As of today, I have over 21K followers. As my Twitter following increased, I noticed that it was possible to raise a fund publicly. Additionally, when I decided I wanted to raise, it was really because I met a founder—somebody reached out to me on Twitter, I really liked them, and wrote them back. I tried to put a special purpose vehicle (SPV) together to make the investment. But one of my advisors said he didn’t want to put money in the SPV—however, he wanted to put money behind a fund. So, I went and raised a fund. I realized very quickly, my personal network would only get me to the half a million mark, maybe a little bit more. That was a fair way off my ambition of $10M. However, simultaneously, my Twitter followers were growing, several VCs were starting to follow me. I just made it a point that if someone was in venture, and they followed me, I sent a note with a link to my calendar, saying “Hey, let’s meet.” Very quickly, I started to have a lot of meetings. So, between June and September, I had over 1,100 meetings, 80% of which were with other VCs. I was meeting other VCs, some were saying, “Hey, the fund you’re working with sounds interesting, I’d like to be a part of it.” I was already using Twitter to meet people and gain introductions. When we publicly opened the fund in early September, we informed 506(c) that we were publicly soliciting, enabling me to put a post on Twitter saying, “Hey, I have a fund, looking for LPs.” I have to say at this point [at the end of 2020], I’ve soft circled slightly over half of $500M. Half of them are people who found us through Twitter. In the last four or five days, we have found 45 new people who are now looking at our legal documents. Whether or not any of them will ever convert into actual LPs is to be seen. However, the ability to reach an audience without having to do the multitude of in-person meetings has been phenomenal. It all happened by happenstance, I didn’t go in planning, or think this is going to be the way to do it. Everything fell in my lap at the right time—good timing.
Johannes Lenhard (JL): So instead of seeing the traditional fundraising route as the only way for you to close your fund, or thinking you were disadvantaged by the fact that you don’t have the same networks as many of your counterparts, you turned an adversity into a massive advantage here.
MC: That is essentially what happened, and I got lucky for it. I will say, though, there was not a specific or magic thing that I did here. The magic pill to solve these issues is the fact my Twitter following grew from the fact that I had been investing for seven years already. I had my own unique perspective. That is what made people gravitate to following my tweets. I was able to use that gravitation to kick off everything that has followed. Without the solid foundation of knowing what I am talking about, having the experience to speak with authority, and people finding my perspective unique, none of the rest could have been possible. My earlier work facilitated everything slotting into place, similar to the crowdfunding model—much of what transpires in public is preceded by prior hard work and grind.
EB: Thea, what has your experience of raising been? What do you perceive to be your biggest problems?
Thea Messel (TM): Back in 2018, when I started Unconventional, the jungle of regulatory constraints and understanding what you are and are not allowed to do still stood. However, I’m happy to hear that it’s becoming easier to invest; there are some clear guidelines for when to onboard accredited investors and when not to. It is still a jungle here in Europe, particularly as there are directives coming from the EU that can have different implementations among the European countries. At Unconventional, we are based in Sweden and Denmark, and even between those two Nordic countries it has been unclear what was possible and not. When Mac speaks about publicly fundraising, here, it was quite clear that this is not allowed.
Our investment thesis is centered around investing in underrepresented founders. We could see there was huge potential in targeting these types of founders; they were outperforming, which research confirmed, as well as what we could see from the deal flow received when having this investment strategy. This is something that people would want to support if they knew it existed, but we were, and are still, constrained. We couldn’t even go to newspapers and tell them we are about to set up a fund like this, because as it’s in the area of impact, we wanted to be safe. We did not want to breach any of the financial authorities’ rules. The first entity we set up pivoted over the first 12 months. We initially wanted to set up a small €2M–€3M as a “normal” alternative investment fund. However, we didn’t manage to fundraise for that. It took a very long time because everything had to be kept under the radar, and it was just me at that point. Although I had strong first-time backers including Arlan Hamilton, and super angels from the Nordics, it all had to go through network connections, with me not being very vocal on social media. It wasn’t sustainable, so we ended up creating a reverse entity. Instead of fundraising for a strategy where you don’t have to identify the assets, we had eight predefined companies that we wanted to fundraise for that would be our first entity. Then we fundraised for that through our networks and onboard non-accredited investors. Those are investors who typically are underrepresented themselves, or don’t have accredited/professional investor status. However, after mastering that method there was another avenue we established where we had predefined companies and pulled them into a joint entity. This presented a greater opportunity to receive funding from a more diverse pool of investors. As a result, we raised from 60 investors across ten countries over the course of two months, enabling us to put between €10K–€20K into each company.
MC: I don’t know if I’ve had any bad meetings per se yet. I haven’t had as many meetings with institutions, most of my meetings have been with individuals and family offices, these are people who wanted to meet me anyway. They already had some sense of who I was. They understand my goals, what I am working towards is already there. Nonetheless, I have gotten nos. Somebody was pushing me on the thesis side of things. I have received some pushback with standard perspective, questions such as “Shouldn’t you be investing in more companies?” and “Don’t you think you could change the structure of your fees?” Nothing too crazy. I haven’t had anybody ask me questions like, “Don’t you think you should cut your hair before you do this?”
The unique thing about my fundraising is, I have some investing background, but it’s limited. So, I have a limited track record. I’m a first-time fund manager. I know that if you have a standard, rigorous due diligence process to look at a fund, I am never going to pass your due diligence—ever! That is one of the reasons I have never pitched with my deck. Whenever I pitch to people, it’s just me telling the story. I share the entrepreneurs that I have been privileged to help in the past, and the kind of entrepreneurs I’m looking to help in the future. If that resonates with people, then we can start having a deeper discussion from there. But if you start going through all the legal paperwork or digging into my deck, I’m not at that stage yet. Maybe when I get to fund two or fund three, I can be better equipped to prepare for that level of track record scrutiny.
When I get these nos from institutions with that focus, I am well-prepared for them. Most of the people I meet have formed an opinion on how they feel about me, or about the fund, before they ever even talked to me. It’s just a matter of whether I mesh with what they thought they understood about me or the fund when we actually speak. We are lucky because during COVID-19, everybody is at home, so I could do all these meetings via videoconference. If not for that, I would be flying all over the country, and probably all over the globe to have meetings, just for people to say, “We’ll get back to you in a month” and “Let’s have three more meetings before I make a decision.” That takes a toll. So, the idea of somebody investing an early stipend into the GP of around $250K that you could use however you need, that could change everything for underrepresented GPs. While the kickback for that early investor could be that they get to participate in management fees of all the funds you raise as the GP, and everything else going forward.
EB: What are your thoughts on whether you would have been able to do that, coming from your ethnicity, socioeconomic background, etc., if COVID-19 wasn’t a factor? Is there a way that you would have been able to do this without COVID-19? Or without having some form of deep pockets (or an early investor) in the first place?
MC: Probably not. I mean, yes, but I’ll be honest, when I was thinking about doing this, I was initially trying to raise $100K–$250K for the GP, so I could have the money to go raise the fund. Raising a fund is essentially business development; using your business development skills to grow a network or have a network of people you can talk to, who could potentially be investors, is the way you go about it. I just happened to use Twitter as my tool, but it could have been LinkedIn, it could have been something else. I would have figured out a way to do it. However, some capital upfront is vital. I’ve been in the tech field for the last 20 years. With that being said, I have some people who I could go to, to see if I could get that money. But it would have been a lot harder for me to do it that way. To your point about people saying they don’t invest in first funds, most institutions don’t. Most first funds are high net worths and family offices. Those people don’t talk about this stuff as much. Then for the institution side who don’t say they don’t invest the first funds, it’s the same thing for investors today, we don’t invest in pre-product or pre-revenue companies. But every now and then you meet a founder, that’s pre-product and pre-revenue that you just truly have real conviction for. You take a chance on that one.
TM: Regarding COVID-19, yes, I definitely agree our operational budgets have gone down tremendously. We are affected by the fact that the investors have to accept that they cannot meet us face to face and sit down and analyze our body language. Finding other ways of connecting, especially over video call, is extremely good for the industry, in general, and particularly good for emerging managers with scrappy operational budgets.
What we tend to say is that we are a triple impact fund in the sense that we are underrepresented fund managers ourselves, in the profiles and backgrounds we represent. We channel money towards underrepresented founder segments. Then there’s that meta impact in that aspect. In addition, we only invest in companies that have impact at their core. We were just about to start our fundraise in early March 2020, then COVID-19 hit and everything stalled. But after the Easter holidays, stocks rebounded and we saw a tremendous appetite for positive impact investment opportunities. At that point, we suddenly had lots of interest from institutional investors, because as I mentioned, we have several layers of impact. They were quite enthusiastic; we actually increased our fund size, I would say tenfold of what we were initially aiming for. Unfortunately, it didn’t come through. In fact, what you mentioned, Mac, in terms of due diligence, well, we have the eight investments that we have, and even though they are performing well, we just do not check those boxes that the larger institutions are looking for. Even when they say they do back first-time fund managers.
Raising a fund is always hard, regardless of whether you have experience or not. What we experienced was that because we have a thesis of investing in underrepresented founders, that creates a sense of empathy in investors; it is something people like and want to be a part of. At the same time however, people were also reluctant to actually accept that the opportunity was there, because in doing so they had to accept there was a problem, and that the problem is as big as it is when it comes to the Nordics (which is known as the most equitable place in the world). What we found there was a lot of interest from outside of the Nordics, because it’s easier to see both the potential and the related problem in a market that is not your own.
What was particularly hard in the beginning was deciphering whether interest came from a place of “Oh, I’m curious about this thesis” versus “I believe in this opportunity, an alpha opportunity investing in underrepresented founders, and I accept that as a white man based in the Nordics.” In that process, there was a lot of talk about Unconventional. VC is a small community in the Nordics, we experienced that some investors spoke negatively about our pipeline, however that the same investors were investing in the same companies through other opportunities. This was very different when talking to investors from outside the region that found our dealflow and selected investments as high-quality dealflow. I suppose it’s always like that when you try to disrupt something, you are at the risk of getting shut down based on that alone. I think it is difficult, because we really want to change something in the industry, and at the same time, there are a lot of bigger players who say they want to support that change. Yet, they want to support that change until a certain level. As an emerging fund manager, if you’re going for the diversity focus, choose your battles. My advice is, be very transparent about the challenges faced by the founders you want to back and persevere. You can’t really do anything about institutional investors, they have their boxes they need to check, so focus your energy where there is bigger conviction and more flexible mandates, so you can get moving and accelerate the impact.
EB: What has been your most important learning? What would your biggest piece of advice be? What would you say to emerging GPs that they should refrain from doing?
TM: I would say, the same as we say to our founders, in order to save time and be efficient, due diligence your investors before you spend too much time on them. Spend the time on those that are more probable of actually backing you. Do they have a track record of investing in underrepresented founders or in your industry? If they say they want to invest in diverse founders, do they actually have a track record of doing that? Have they put actions behind their words when it comes to that? That will save anyone who is fundraising, whether as a startup founder or emerging fund manager, a lot of time. Then in terms of ticket sizes, if they only invest in funds that have a minimum size of 100 million, then we shouldn’t spend too much time on them, even though they might like to have the conversation. When you’re in the diversity industry, everybody wants to say they are a part of it, and they believe it, and they think it’s important. However, very few come to the conclusion that they want to put their money behind such a strategy.
Efficient ways of deciphering who is who: do they fit your thesis in terms of putting actions behind their words? Spend time getting good legal advice from people who are progressive. It can be difficult, if you don’t have a legal background, to actually decipher whether legal counsel can be effective or not. If you have the right entity, set up correctly for the type of network you have, you could open yourself to high-net-worth individuals who can quickly help you get to first close. For us, that was not the case. We knew that we would attract women and underrepresented people, those with potentially smaller funds, but who are willing to do rather than speak, and actually believe in this investment opportunity as they might have experienced biases themselves. Next was the question of how we could create a structure that could accommodate the movement we were tapping into. A combination of legal understanding and your available networks is key, even though you can build your network of professional GPs and potential limited partners going forward.
MC: Be okay breaking rules that are no longer fit for purpose. Funds have been raised in the same ways for so long that people have stopped trying to innovate and think of different ways to attack the problem of some communities being locked out, or to figure out how to fundraise differently.
I am getting a lot of praise right now. Why? Because I am doing things that others have never done before. What I am doing has in turn created a generation of GPs coming behind me who are looking to raise their funds in the exact same way. If we all collectively start to think of different ways to go about raising our funds through different structures, using the things that were historically disadvantages to our advantage (within the spirit of the rules and laws of course), we might be able to see a lot more funds being raised. We either do that, or go back to the same old, traditional patterns. Get creative!
I would also say tell good stories. Too many GPs don’t tell stories when they pitch. Most have their deck and meticulously go through the numbers and what the performance is going to be, rigidly hitting the notes they know every potential LP wants to hear when they are raising a fund. Try something different. You could be really well served telling stories of founders that you have met, that you support, and speaking about how you support them. Give a real-world example or case study of a founder you supported: how you met them, how the deal came together, the things you did to support them and help them grow. Leaving those founders as references can have a strong impact on your potential LP and actually differentiates you from everybody else raising a fund with their pristine deck. Keep in mind, no matter how differentiated you think you are, you probably are not. You are all competing against others that are pretty much identical, just like companies are. There are other funds that are being raised with similar thesis, similar models. So really homing in on what makes you unique and special is key. If you can tie that into a story where you can emphasize what you do, how you do things differently, and the impact that has already created, it can be both helpful and incredibly memorable. That’s just a tactical thing.