Going Your Own Way: Lessons Learned Raising Fund II

Gale Wilkinson is the Founder and Managing Partner at VITALIZE Venture Capital, with a focus on investing in WorkTech – people-first, data-driven solutions that transform work outcomes. VITALIZE primarily invests in B2B software companies based in the US, and they also have a 500+ member angel community.

VITALIZE recently closed its Fund II, raising $23.4 million over a two-year period. Fund I was a 2018 vintage and closed at $16.3 million. In our conversation about how to raise a VC fund, Gale shared what LPs are looking for, her advice for emerging GPs currently fundraising, and the biggest surprises she encountered on her fundraising journey.

^{The $23.4M Fund II has 77 LPs, primarily individuals with a few institutions and a handful of family offices. A significant number of LPs (375) are reportedly watching for the next fund. How would you describe your fundraising journey in 5 words?}

Long, humbling, enlightening, challenging, complete!

^{What drives your sense of purpose, and how did you stay aligned with it in your daily life and while fundraising?} 

I am a founder at heart. I’ve started two HR tech companies and two VC shops and what I strongly believe is that VC is a people business. Throughout my entire career, I’ve stayed focused on community - if you surround yourself with amazing people (in my case, founders, LPs, co-investors, and teammates), it will always work out in the end! I am also passionate about increasing access to the venture capital asset class through our angel network, which is the first in the world for both accredited and non-accredited investors. 

^{What unique or unconventional viewpoints do you bring to the table when approaching LPs?}

My approach may be considered unconventional, steering away from the typical playbook that often advocates raising larger funds, accelerating deployment, and pursuing a concentrated ownership strategy. With a decade of investing experience, I am grateful to have built an amazing network of co-investors who send high-quality deals our way quite often. We are good partners who bring a unique network and valuable WorkTech point of view to the table.  Why would we want to compete with our friends to try and “lead” deals when we can continue to co-invest and take more bets with smaller checks? 

I’ve learned that it’s more important to get into the very best deals, which means taking more bets is advantageous. It’s just math. There’s a higher probability of picking a huge winner if you invest in 35 companies versus 15. Sure, it would be awesome to have more ownership in that one that becomes a 100x or a 1000x return, but venture capital’s dirty little secret is that a lot of the picking is merely luck. Deal flow quality varies based on a VC’s access, but the picking is really really hard at the earliest stages. For example, in 2018, we invested in a proptech company that is now killing it, and one of my friends at a proptech VC passed on the deal multiple times when I sent it their way years ago. Shouldn’t the proptech VC have been smarter than me (a generalist VC at the time) in terms of picking a winner in that space? Logic would say yes. But I made the investment, and they did not…

_{What advice would you give to emerging GPs fundraising right now?}

My first piece of advice would be to get a startup role in an industry you love. Pick wisely. And then (with the blessing of this startup CEO),  start by raising a $2-10 million fund from your personal and/or industry network. This dual approach gives you time to build relevant deal flow access and also increases your credibility as an operator in the space. If it makes sense to transition full-time to VC when you get to Fund II or III, do it!

This current market brought an entirely new complexity to fundraising which taught me a few things as I look back on it.  Over the course of two years, I successfully closed Fund II at $23.4 million, building upon the foundation of Fund I, which reached $16.3 million. The journey involved a strategic shift; initially aspiring for a $50 million raise, I made a pivotal decision after about 12 months into the raise, opting against establishing long-term partnerships with institutional investors. I realized that individual investors is where I have a strategic advantage (and a personal interest - back to the importance of the people around you!) My partner Caroline and I decided that raising a $20-25M fund every four years and keeping our strategy and team the exact same over time (versus constantly growing and shifting strategy) should allow us the opportunity to excel in supporting our companies and generating returns for our LPs.  

To fellow emerging managers embarking on their fundraising journey – you have permission to embrace a contrarian approach. Who cares if you do it differently; what really matters is that your firm’s focus and strategy are authentic to you. The prevailing advice from institutional LPs often revolves around raising more capital, deploying funds rapidly, concentrating ownership, and investing alongside well-known funds —an established playbook followed by the majority. However, recognizing that this conventional approach leaves ample room for alternative models and strategies is key.

_{What surprised you during your fundraising journey?} 

First off, the prevalence of ghosting from LPs was unexpected. This revealed a challenging aspect of the fundraising landscape I just wasn’t prepared for. If I take a phone call with a founder and get access to their data room, I am 100% going to respond with a yes / no decision. About a quarter of the LPs I talked with, and many who had access to my data room, just never responded despite many follow-ups. 

I also encountered reasons for rejections that seemed illogical which added another layer of unpredictability. For example, one LP told me they passed because VITALIZE is not very “institutionalized” in how we help portfolio companies. This is jaw-dropping to me because we have a very structured process that includes outreach, our team assisting, and then tracking those assists over time. Our founders continually say we help more than many of the larger funds. 

The disconcerting experience of two LPs reneging after signing documents highlighted the volatility inherent in the process. 

Notably and this was one of my biggest learnings throughout the process is that a significant number of LPs held misconceptions about WorkTech, perceiving it as a small and/or uninteresting space. It’s actually quite large (two-third of the planet works!) and there is so much inefficiency (read: opportunity) which I personally find very interesting!

_{How do you anticipate the LP dynamics to change given the current market conditions?}

I expect to see a shift in institutional LP behavior, with many reallocating to safer asset classes. I foresee a landscape dominated by a few large multistage funds, a thinning of mid-sized VC firms, and a long tail of many <$50M funds. High net-worth individuals will play a crucial role in early-stage LP capital, becoming increasingly significant in the future to this long tail of small funds. The potential regulatory change allowing fund managers to accept 500-600 limited partners for funds under $50 million is anticipated to facilitate this shift in capital source, and it is expected to be approved within the next year.

^{In what ways has the Kauffman Fellows network played a role in supporting your fundraising journey and shaping your career in venture?}

Kauffman Fellows encourages VCs to follow their own path. This refreshing mentality differs so much from the traditional LP viewpoint of the market and what VCs “should” do to be successful. Interestingly, I have way less imposter syndrome after going through the program which made me realize that I actually do know a lot and have made really good investments. VC is a tough industry because it can take years and years before you know if you’re any good! I am grateful for the amazing people I’ve met through the Kauffman network, and I look forward to seeing what the new classes do to change the face of venture.