I co-founded Laconia 11 years ago. We’re a pre-seed and seed fund, so I have a view on this. But the math doesn’t care who’s doing it.
Every fund has a number it needs to hit. For a $10 billion fund, returning 3x means sending roughly $30 billion back to LPs. Very few companies in history have exited big enough to make a dent in that.
So the big funds end up with an IPO-or-die mentality.
If your fund needs a handful of $50 billion outcomes, a $400 million acquisition doesn’t register. At 10% ownership it returns $40 million, less than half a percent of the fund. The pressure on every company becomes the same: raise more, hire faster, pass on the offer, go bigger.
For some companies that’s the right call. If you’re building a frontier AI model, you need billions, and the big platforms are the right partners. But most companies aren’t that, and when the moonshot playbook gets applied to a good business in a real market, it breaks things. Founders get told their company isn’t big enough, or they raise at a price the business can’t grow into and the next round gets ugly.
Small funds work on different math, in most cases very different. And by small, I mean the size of the fund, not what it calls itself. A $250 million fund with “seed” in its name has to think a lot more like a big fund than like us.
Put that same $400 million exit in a $75 million seed fund and it returns more than half the fund. For us, that’s not a disappointment. That’s the reason the fund exists.
We’ve lived this. Years ago we backed Alex Sherman and Peter Schwartz , two early MediaMath employees who started a company called Spotfront. It became PromoteIQ, a platform that let retailers like Kroger and Kohl’s run sponsored product ads on their own sites. They raised about $6.5 million in total, built something real, and in 2019 Microsoft acquired them. It wasn’t a billion-dollar headline. But that one exit returned our entire Fund I. To a mega fund it would have been a footnote at best. For us, it was the fund. And because they’d stayed capital efficient, it was a great outcome for the founders and the team too.
That exit put a spotlight on Alex, and this time the mega funds came calling. His new company, Bluefish, has since raised from NEA, Threshold and Salesforce Ventures. But when he started Bluefish, he came back to us. We’re grateful for his loyalty, and to have been part of the first institutional round.
The way we get paid is different too. At a $10 billion fund, a 2% management fee is $200 million a year before a single company exits. At a $75 million fund, it’s $1.5 million, which covers a small team and an office. We only make real money one way: when our companies win. Your exit isn’t a rounding error to us. It’s our paycheck.
And that changes the whole relationship. When a $300 or $400 million outcome is a win for the founder and a win for the fund, we’re rowing in the same direction. Nobody has to talk anyone into anything at the board meeting. We also can’t afford to place three bets in your category and see who wins. If we wrote you a check, you’re the bet.
Which is why founders need to make sure they’re aligned with their investors from day one. If you aren’t, it gets messy, and it usually gets messy at the worst possible moment.
I’ve seen the other version too. A buyer shows up with a great offer. The founder is looking at life-changing money for themselves and a team that’s been grinding for five years. The investor is thinking about whether it moves their fund. Now the board is split, and a moment that should be a celebration turns into a negotiation.
Nobody in that room is a bad guy. Everyone’s just following their incentives. That’s exactly why you want to understand those incentives before you take the money.
So do your homework. The same way we diligence you, you should diligence us, and not just the fund but the partner who’s going to sit on your board. Ask how big the fund is and what your company needs to be worth for this investment to matter to it. Ask the partner what a good outcome looks like for them, and what they’d want you to do if someone offered to buy the company for $300 million in three years.
Ask whether they’ve backed anyone else in your space. A big fund can afford to place a few bets in the same category and see who wins. That’s smart portfolio construction for them, but it means you might be one of their options, not their conviction.
Then call a founder from their portfolio who sold for less than a billion and ask how that conversation went. If the answers make you uncomfortable now, they’ll be a lot worse in a board meeting later.
Next up: The Next Great Founder Isn’t in the Room.
This is part 2 of a part 5 series.