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A VC who backed Uber, Spotify, Asana, and Alibaba just raised a new $950 million fund. He says the secret to success is finding CEOs who won’t return his call.

October 14, 2020

By Julie Bort

  • Mitchell Green, founder and managing partner at Lead Edge Capital, is one of the most successful, under-the-radar venture capitalists in tech.
  • His firm just raised its fifth fund. It was an “oversubscribed” $950 million fund, unusual because it has 500 limited partner investors, many of them tech execs, he says.
  • Green tells Business Insider that raising a fund during a pandemic was an odd experience, not only because it meant doing over 600 meetings on Zoom but also because investors were nervous about the public markets.
  • Green’s firm is known for being a cold-calling shop. He says the secret to its success is to find the founders that won’t return his calls.

Mitchell Green, founder and managing partner at Lead Edge Capital, is one of the most successful, under-the-radar venture capitalists in tech. His firm’s portfolio reads like a unicorn’s all-star list: Alibaba, Asana, Bird, Bumble, Compass, Duo Security, Guild Education, Spotify, Toast, Uber and others.

That’s an enviable list of investments for any venture firm. And it has attracted the attention of a growing roster of limited partner investors, Green tells Business Insider.

On Wednesday, LEC announced that it’s raised a new “oversubscribed” $950 million fund from 500 existing and new limited partners. LEC is a growth-stage firm, so the new fund will make investments ranging from $25 million to $150 million per deal. With this fifth fund, LEC’s has grown into $3 billion under management in its 11 years.

“This was certainly a unique year for fundraising,” Green told Business Insider. Fundraising began in May.

“The most unique part of the situation this year is that our entire fundraise was done via Zoom,” he said. “Typically, we would travel extensively, but due to the pandemic, we conducted about 600 Zoom calls over a few-months span. There were a large number of new LPs that committed to our fund having only met us virtually.”

To have interest from so many LP investors was also unusual. While all of them are “experienced” private investors, most of them are not the typical institutional investors but “executives or entrepreneurs investing on their own behalf,” he said.

“One constant refrain we heard was that many of our individual LPs had pulled some capital out of the public markets, feeling public markets were potentially overheating,” he said.

Institutional investors, such as university endowments, pensions, foundations, still made up a sizeable chunk of LPs, he assured us, and this year was also odd. In May and June, they first they were tight-fisted after the public market crash in March and April. But by July, they were eager, with “pent up demand for additional private fund LP commitments.”

Lead Edge Capital partners: Brian Neider (left), Mitchell Green (center), Nimay Mehta (right).

Too busy to take his money

LEC’s track record was another draw and Green tells us the secret to success is find them when they don’t want or need his money.

Rather than taking pitch meetings from founders on the fundraising circuit, Lead Edge works in reverse, on outbound calls, Green says.

But Green has another, even more unusual criteria: Any CEO that immediately takes his call, he crosses off the list.

“Look, the way we source deals is we cold call. We’re not the only ones cold calling. Lots of firms cold call,” he says.

The LEC difference, he believes, is that two of the firm’s three managing partners, himself and Brian Neider, trained at the knee of Bessemer Venture’s New York partner Jeremy Levine. (The third partner, Nimay Mehta, learned at Jeff Horing’s Insight Partners, another investment firm that favors cold calling).

“I’m one of the few people who run a firm of any scale where the three partners who run the firm have all started their jobs, cold calling,” he says. “The way we sourced at Bessemer was smile and dial.”

That kind of deal-making builds persistence.

“Between ’05 and ’07, my partner Brian and I left about about 20,000 voicemails, sent about 20,000 emails, probably spoke to, I don’t know, 4,000-5,000 CEOs,” he says of his time at Bessemer. “We put out like 30 term sheets and our actions cold calling led to like 10 deals.”

He estimates those 10 deals turned $120 million invested into about $400 million.

He honed his outreach tactic at Eastern Advisors, a “Tiger cub” fund from legendary hedge fund Tiger Management. He was still in his 20’s when he launched Lead Edge and he brought cold calling with him.

But the key is to pay attention to how his cold calls are received.

The CEOs who immediately take his firm’s call? That’s a red flag, because they’ve “got nothing better to do than talk to a venture capitalist? We want the CEOs who are like, ‘I don’t need your money. I don’t want your money. I’m growing really fast’,” Green says. “That’s the company you want to talk to.”

Since the CEO won’t talk to him, how does he land the deal? He plays the long game with “persistence,” he says. That involves keeping a conversation going and making introductions that’s helpful to the founder.

“Once you start helping, you try to create a deal,” he says.

View original article at Business Insider