When Operator Collective started in 2018, its idea of cultivating a community of operators as LPs to serve as a resource to its portfolio companies was unique. Now, it’s de rigueur as many firms build out their operator teams. But Operator Collective looks to prove that its model still rises above the rest with its second fund.
The San Francisco-based organization raised $92 million for its second fund to invest in early-stage enterprise companies. The fund was backed by an LP base of 152 operators, in addition to a few institutions, and comes three years after the firm raised $51 million for its first fund.
Operator Collective founder and CEO Mallun Yen said while there are a few changes for Fund II, the goal and structure are largely the same: Creating a community where startups and operators can help each other.
Yen, a former operator (defined as someone with experience building a company) herself, got the idea for the model back in 2018 when she realized a gap in the market. She had sold her startup and wanted to potentially make some investments, but she didn’t think she had the right network to do so and wasn’t really sure where to start. Then it clicked: She realized she was likely not the only operator who had money to invest but not enough to write meaningful angel checks or have the time to vet potential investments.
She decided to pitch her idea to Erica Schultz, whom she considered to be her target demographic. Schultz was working as the chief revenue officer and head of go-to-market at New Relic at the time. For Schultz, the pitch sounded perfect.
“I was a busy operator. I didn’t have time to really diligence companies on my own,” Schultz said. “Once in a while a few came my way but the ability to invest through a fund specifically into enterprise tech was super attractive to me.”
But Operator Collective will be deploying Fund II in a very different environment than Fund I. Having operating partners or teams of operators has become almost table stakes in recent years, and many firms now look to raise LP capital from operators, too. Yen thinks that their model still rises above because of its intentionality.
“This was not build and then build a community,” she said about how the model differs from older firms changing their strategy. “We tore apart the venture model and built it from the bottom up to be optimized for operators. It’s not as afterthought. It’s front and center with Operator Collective.”
She said that unlike other firms that maybe have one retired operator who was a CMO or one person just focused on hiring, Operator Collective’s network has multiple professionals from each area with a focus on underrepresented operators. Yen said this allows portfolio companies the chance to get access to an operator better suited to their company, and operators get to be involved without being overwhelmed.
Fund II also includes a pilot program of 25 LPs that are all earlier in their career, which Yen said has seen great traction thus far.
This type of model allowed operators to bring in deal flow while also helping diligence companies and has even fostered some members to join startups in C-suite roles.
In a world where advice for founders comes from all angles and seemingly everyone is a an expert, Operator Collective thinks the connections it can foster between its portfolio companies and operator network can cut through the noise and keep its relevance as more firms look to offer a similar value-add.
“I think what’s been super exiting is the reaction from the entrepreneurs and the market,” Yen said. “The feedback is not only that Operator Collective is incredibly valuable but brings so much advice to the table for entrepreneurs. It’s also really rewarding for them to tap into a diverse set of operators on their cap table and get to know a really diverse set of talent.”