Sweetwood Ventures Fund of Funds relies heavily on smaller venture capital funds

Even as older VC firms continue to raise money, LPs can have better luck by focusing on the little things.

Amit Kurz, general partner of an Israeli fund of Sweetwood companies, agrees. He told TechCrunch that over the past year he’s noticed an increasing number of small funds he doesn’t know of competing at cap tables. While these “nano” funds didn’t fit Sweetwood’s $140 million core fund thesis, he thought it would make sense to find a way to support them.

“I was very intrigued by how we can expose ourselves to that space,” Kurz told TechCrunch. “They generate this entry into the rounds with the most entries and invest a small amount of money, which is a classic win-win situation. You don’t compete with the best VCs, but everyone loves you because you bring so much value.”

So Sweetwood decided to set up a fund especially for these investors. Now the company is announcing it has raised $20 million for a separate fund to convert checks of up to $2 million into funds of $15 million or less, with a focus on Israel-based funds. Sweetwood has supported seven funds to date.

It’s also essentially trying to create nanofunds in partnership with angel investors.

For this side of the fund, Sweetwood will work with angels to match their investment in a company and give them the money the company raises. While this hurts the company’s potential returns compared to direct investment, they didn’t take such a gamble to begin with. They have made two such deals to date.

“It’s a no-brainer for these guys,” Kurz said of reaching out to angel investors. 🇧🇷[They are] they’re still doing those deals and there’s an outside partner that doesn’t look like a tech scout, but gets paid to be a tech scout.

The company started raising the nano-focused fund at the height of the 2021 madness and now wants to launch into very different market conditions, where smaller, less established companies are really struggling to raise money. Kurz said that while they were initially concerned as market conditions began to deteriorate, they quickly overcame that fear as they realized that the funds they backed will be used to issue checks to companies with more reasonable valuations and they will have time to to issue them. Caution.

Kurz said that when evaluating these potential investments, since neither the angel investor nor the nanofunds are big enough to make any of the rounds they’re in, the big question is why do they want startups to take their money? He said the company is looking for funding and people who fall into two answer categories: experience and access.

For some, especially on the angel investor side, access is king. If you are a well-known and well-connected former tech entrepreneur, you should be notified of more notable deals and invited to other angels just because of your experience. Kurz said they could be successful angels or well-known founders.

On the other hand, Sweetwood looks for funds and individuals with experience and knowledge that companies trust to close rounds because they bring outrageous value to the table relative to the size of their check.

“Why do people give you access? Why do people want you at the dressing table? he said. “It focuses much more on value and the ability to access offerings than your ability to differentiate offerings or make choices within the offering.”

While this nano fund is separate from the company’s flagship series, Kurz believes some of these funds would be good candidates for a flagship fund in the future. This will also help them get into companies more quickly that may also end up in the portfolios of flagship funds.

“Very small funds tend to outperform,” he said. “The smaller, the greater the chance of generating extraordinary returns. I found it very interesting, how do we build something for this?