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A RareBreed: Mac Conwell on raising his first fund without an LP network

This week’s exclusive features Mac Conwell, General Partner at RareBreed Ventures. Mac got his start in venture as an institutional investor for the State of Maryland's venture arm writing seed checks into primarily minority-founded companies in Maryland.

Now he’s raising a $10M first pre-seed fund to back exceptional founders outside traditional venture ecosystems like Silicon Valley, New York, and Boston. He’s raised ~$5M and made 15 investments so far.

Last week, Mac joined the Sacra Discord for a live Q&A with Sacra members.

Mac Conwell

TCT: After spending years at state-backed funding TEDCO (Maryland Technology Development Corp.), you branched out and launched RareBreed Ventures in September of 2020, raising $3.5M, across 100+ LP’s, with a goal of raising $10M. What was the most surprising challenge for raising this fund, and how is fundraising going to date?

Mac: In general, fundraising is not fun! No, I’m just kidding, fundraising is going well. It’s a process that hinges on momentum. So, like, as we've been able to raise capital, and as we've deployed and- and started to make some investments, we're starting to see things pick up. So, that's exciting! We are currently at $4.7 million so things are moving. The most surprising part was my lack of a network for LPs. I had been an investor but I invested primarily in and exclusively in the state of Maryland but I didn't spend as much time fostering that national network because I was so focused on the state of Maryland. When it came time for me to raise the fund, I just didn't have that network of LP’s I could reach out to and raise overnight. And so, the way I went about building that was all through Twitter. When I started thinking about this fund a year ago, like, June 2020, I had, like ~2,500 followers on Twitter and here we are in May 2021 and I'm close to ~35,000. That process was amazing and within that, as I noticed that people who were VC’s were following me, I just started sending every one of them a DM saying, "Hey, would you like to meet?" and around 80% of them said, yes, and that kinda got me going on the process. It got me my first few commitments and really got things moving, but I literally didn't have a network that I could raise capital from within and I had to build that organically, and that was tough.

TCT: I'm going dive in more on the LP side because I think that's super interesting, especially for emerging fund managers. As you scale, how are you thinking about building relationships for LP’s that couldn't commit to this fund because of the size but they want to keep in touch for the future? How are you thinking about building relationships with those LPs?

I build relationships with those LP’s the same way that entrepreneurs build relationships with us (investors). I keep them on my update list. They get our quarterly updates. If anything big happens, I'll do an update specifically for them. There are certain updates I send to my LPs, and certain updates I send to people who are potential future LPs. We had Insight Partners come in as a LP, and they're a large, institutional fund. I sent that notice out to all my potential future LPs, like, "Hey, you know, here's a fund that you all know that decided to back us." Things like that. It's just a cadence of really trying to keep them engaged the same way founders try to keep fund managers engaged with them. I try to run my fund like an e-commerce company. We have drip campaigns - we do email marketing campaigns every three to five weeks and give various updates on the companies we invested in and tell stories about the founders. That probably just speaks to who - I am as a founder first. 

TCT: for the LPs that did commit to this current fund, did you feel as though the commitment was reputational-driven, meaning they already knew you and knew your story, or did you feel like you had to get them over the line with your strategy?

I’d say it was a combination of relationship and brand building. Since I built a brand on Twitter, all these people got to hear me and knew what I was all about. I realized something very quickly and it was pretty fundamental to where we are in the fundraising process. A first-time fund or sub $10M fund is really like a pre-seed company. The LP’s who are going to invest in our fund at this stage are taking a bet on me. If they have a strong, traditional due-diligence process, I'm probably never going to pass that because I don't have the track record (yet). So the LP’s that invested now believe in my differentiated deal flow and ability to invest in companies that they would never see or that they just want to make a bet on diversity. I’m also able to get into unique deals. For example, St. Louis based Rebundle. They make plant-based, biodegradable braiding hair. Like, that's just crazy! Right?! And then on the flip side, I was an investor in Mainstreet and they are about as Silicon Valley as you get and likely on a path to $100M ARR. Lastly, I think the other thing I've noticed is that I'll get into these meetings for people who want to be LP’s, and they're almost shocked or surprised by how well I know this space. I view RareBreed almost like a pre-seed company. You’re making a bet on me.

TCT: given that this is likely fund one, how do you think your capital management strategy will change over time? You know, at what point does ownership and valuation and reserve start to matter?

We're reserving some money for follow-on, but follow-on's really difficult, particularly in this market because we're still fundraising. To give you an example, we’ve made 15 investments so far. Six of the 15 companies we've invested in since January are now raising follow-on. We don't have the dry powder to make the moves we’d want to make on those. And so now, thinking through what does the strategy look like - do we put together a syndicate? SPV? We’ll see.

I like to talk to other fund managers and get their opinions on this and how to deal with it, but yes, we will be setting aside follow-on for the future. 

There’s a saying about “turning good investors into good fund managers.” I'm arrogant enough to believe I'm a good investor, but I'm learning to be a good fund manager, and that's all these little nuanced things.

TCT: If you pitched family offices, what's the biggest hurdle you had to face in getting them over the line?

I’m still trying to figure out family offices! I didn't even know what family offices were when I first started investing. I would say pitching family offices is about momentum. They're seeing how we pick companies. They're seeing who we're raising from, and so on. There's a family office here in Baltimore I'm meeting within a few weeks, who's been following me for the last 5 months or so. The family behind it is uber-rich with very strong ties to Baltimore, but I had no clue about this until now. A lot of these family offices are nondescript and tough to get in touch with. But overall, it's really opaque and hard to get into and so having family offices introduce me to other family offices has been very helpful. 

I will say, though, building up awareness and a presence on Twitter and Clubhouse has been huge. I've had family offices reach out to me because somebody who worked there heard me on Clubhouse. To be honest, I hate Clubhouse. It's a complete time suck, but I've gotten LP’s off of it and I've seen other people get LP’s off of Clubhouse. I do a Clubhouse weekly every Wednesday, at 7:00 p.m EST with Elizabeth Yin from The Hustle Fund and Jenny Fieldings from Techstars New York. I do it because it’s still part of branding and part of giving back. 

But yeah, family offices are tough, man.

TCT: RareBreed is targeting companies with diverse founders outside of the Silicon Valley, NYC and Boston hubs. Who are some of the founders you’ve invested in to date, and what regions have you seen emerge outside of the traditional hubs?

Pay attention to what's going on in Ohio, Oklahoma, specifically Tulsa. Oklahoma. The Kaiser Foundation's putting a bunch of money there to rebuild black Wall Street. Atlanta, it's doubling down and growing on itself. Everybody's going to Miami and they will be a big player. Chicago has a lot of stuff going on as well. Honestly, you could go into any major metropolitan city in the country and there's going to be a growing tech ecosystem. 

In terms of great entrepreneurs we’ve backed, one is Rebundle. Rebundle is a company based out of St. Louis and they are making plant-based biodegradable braiding hair. Another is RoboAmp. It's a company out of Dallas, Texas and it’s a Latin founder who helps websites load faster in the e-commerce space. There’s also a company that's in New York called Juno Medical. It's a next-generation medical center and the founder is based out of Harlem, New York. People say "New York? That's a tech hub!" but I don't know if Harlem is!

TCT: You’ve noted that at the pre-seed stage, you tend to look for an MVP and a well-thought-out customer acquisition strategy. What customer acquisition strategies have stood out the most to you, and how do you help founders with this?

It’s going to be different for every founder and every industry but the one thing I tell founders is you want to be as creative and innovative as you can with your customer acquisition strategy.

The amount of energy you put into your product being differentiating and creative, you should do the same thing with your customer acquisition. Two things that we've seen in the space though recently from customers acquisitions standpoint is if you're talking about viral growth: TikTok & Discord. 

TikTok is the new player for viral growth. We've seen TikTok take companies from, like, a thousand users to 30,000 users almost overnight. Hell, we saw TikTok take one company from, like, 3,000 users to 200,000 users in three days!

The other thing that we're seeing in the marketplace is this idea of what I'm coining "community-based marketing." Building up a community that’s talking about the problem and commiserating and then the community becomes the evangelist for your product. The product that we're seeing do this the best right now is Discord. We're seeing Discord make the move from just the young people and gamers to everyday people for all kinds of things. I don't know if Discord's really that differentiated from WhatsApp or Facebook Groups or Reddit but for whatever reason, that is the platform where people are building communities and these communities are becoming very insular and then help grow your user-base of your product. Especially if you build up that community pre-product and then stay engaged post-product.

Those are two things that I've talked to founders about a lot lately in terms of customer acquisition ideas.

TCT: How many decks do you see a week and what’s your process for vetting these?

I’d say around 75-100 decks per week. I try to review as many of them as I can. For the ones that are interesting, I set up meetings. I'll determine very quickly if this is something that the rest of the team needs to see or if it’s not a perfect fit for us.

TCT: You’re an active thought leader on Twitter within the venture and startup community. What do you see as the power of content when it comes to running a fund?

It depends on the type of fund you're building. Every fund has its own strategy for deal flow and branding. Thrive Capital is an amazing fund with a great portfolio, and they're all about mystique and mystery. Like, most people don't know who they are. You can't really figure out who the GPs are and there’s nothing on social media. And that works for them.

On the flip side,  for me, we're a very public-facing fund. We're building in public. So, because of that, content marketing and brand-building becomes really important because that helps us win deals. This helps us get LP’s. It has to be the personality that you want for your fund. 

All the other members of my team on the fund are now starting to do that and that's also part of what I require of them now. Like, "Hey, is there an industry you're excited about? Cool, go write a medium article about the future of that industry." Build up your profile on Twitter. Start taking these meetings and growing your network. Because that's going to be a differentiator where we as a fund win. I think content can be really impactful because it helps the market, and the market is the ecosystem. In this case, other funds, entrepreneurs, and LP’s will now understand how you think about things and what you're looking for. And if you get labeled as somebody who is really smart, helpful, and really exciting, then that'll help you win rounds because companies will just want you on their cap table.

I have several companies in my portfolio who basically came to me because they just wanted RareBreed on their cap table when they had tons of options. They didn't need RareBreed to fill their round, but they wanted us. Content can help you do that. But, again, you have to have content that is reflective of your fund and brand.

TCT: How do you stay organized with your investments (managing notes and SAFEs, pipeline, etc)? 

We use Carta and Airtable. Wish we had a more sophisticated tech stack but we’re still doing most of our work out of Airtable!

TCT: What was your first 100x/10x and how did you get into that deal?

I'll let you know when I get there! I'm still waiting for it. It probably won't be a 100X or 10X because of the way the investments were structured for the state of Maryland, but it's a company called ScholarMe. ScholarMe is a company that helps students plan and pay for college. I met the founder when he was a 16-year-old in high school, gave him his first 40K check out of the state of Maryland (in 2018) and today, he is actively raising a Series A. Had the investment been structured properly, that would've been a 10X plus. That was one of the first things I did when we started RareBreed, I went to the founder of ScholarMe and was like, "Hey, can you take this check from me?" and he said "of course."

TCT: What’s your secret for getting on the cap table?

My secret for getting on the cap table is helping founders understand that I'm not money. I'm not just a VC. I'm basically an employee. When you take this money from RareBreed, treat me like an employee because we are tied at the hip. We are in a marriage, and so whatever you need from me, just ask. I think that resonates with founders. You could talk to company after company in our portfolio, they'll tell you we helped them hire, we helped them get funding, we helped them with strategy, etc.

TCT: What's your biggest miss (a company you saw but passed on)?

Oh man, it has to Evaluate.market. They basically help you monitor NFT value in real time and they specialize in NBA Top Shot. I tried everything I could to get into that deal and I missed it by a day. A week later, they got an exclusive deal with NBA Top Shot. So, now, their ratings and everything is on NBA Top Shot and the week after that, Draper Labs, the company behind NBA Top Shot, got a four-billion-dollar valuation. If I had only checked my email sooner! I’m still sulking about that one. We'll see at the end of this year where NFT’s stand though and if it was truly a big miss or not. 

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