I've talked a lot recently about the challenges facing VCs when raising fund II compared to raising fund I.

You can see part 1 here and part 2 here.

Since then, I've received a bunch of questions from emerging fund managers on this topic. And this one stood out:

"My Fund II companies haven't grown much yet, and I'm ready to raise Fund I. My current investors advised me to invest alongside some well-known funds to attract new investors. But those rounds are oversubscribed, and the valuations are pretty high. Should I invest in the hot deals to attract investors, or keep plugging away on the under-the-radar deals?"

This is such a fabulous question, and it brings up the important topic of "buying logos".

What does it mean to buy a logo?

When your fund is still in its early days and you're trying to prove your value to investors, it may be tempting to buy a logo.

This is when you invest alongside a highly-reputable and well-known fund (think Sequoia or Andreessen Horowitz) as a way to attract LPs.

The theory behind this strategy is that you'll have more credibility with LPs if you can say "oh yes, we invest along [insert famous, fancy VC fund here]".

When it makes sense to buy logos

Buying logos isn't an inherently bad strategy. Many respectable funds have done this to attract new LPs, and been successful. But it only makes sense if:

A) you believe in the company

and

B) you believe in the company

See what I did there?

See, LPs have entrusted you with their money. As a VC, you have a fiduciary (5-syllable word, heyo) obligation to your investors to be a responsible steward of their wealth.

So investing in any company you don't believe will produce a meaningful exit – logos aside – is irresponsible. It's careless.  And it certainly won't help you attract LPs in the long run.

Remember your thesis

Is it ok to buy logos if the investment opportunity falls outside of your fund's thesis?

Maybe.

Sometimes funds will buy a logo for the purpose of attracting LPs even if:

• the startup is in a different vertical than their typical investments
• the valuation is higher than their typical investments

Look. If you're an angel investor and you want to invest in something that falls outside of your personal investment thesis, that's totally fine. It's your money, and you get to decide how to spend it

But many LPs will invest in your fund based (at least in part) on your investment thesis.

So you've gotta stick to your investment thesis.

Does this mean that if you focus on B2B SaaS companies, you can NEVER invest in a consumer app? No. Of course not.

If you have strong conviction in a founder outside of your focus area and you believe that her startup can provide a meaningful exit... it might make sense to make an exception.

But if your fund focuses on B2B SaaS companies and you use your LPs' money to invest in real estate... they might raise some eyebrows about that

Because going THAT far outside of your investment thesis (whether or not a16z is investing) indicates that you lack discipline. That you lack focus. That you lack the understanding that you are responsible for other people's money.

And there ain't no logo that'll make up for all that.

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