Launching a VC firm can be a demanding undertaking. New fund managers face many challenges, including fundraising and finding new LPs. Even with a vast network of investors, fundraising can prove to be a challenging task, so the process can become more arduous without deep-rooted connections in Venture Capital.
Difficulties can arise as many LPs prefer to stay anonymous and do not publicly share their investment status’, objectives, or activities. In our ‘How to Find LPs’ series, we guide new fund managers to leverage and expand their networks. This article will briefly outline ways to leverage your existing network and offer some ways to gradually grow your connections within Venture Capital. When doing so, it would be advisable that fund managers care to avoid general solicitation.
Leveraging Your Network
To run a successful fundraising campaign, it is recommended that you and your partners engage with your network of GPs, Founders, friends, and family. Typically this will be the primary source of your fundraising efforts if you have a vast network. We find that the amount you can raise from your internal network is a significant determinant of your total fund size. Therefore, we advise that you multiply your hard commitments from your inner network by a factor of 10 to find your optimal fund size. Refer to VC Lab’s free Network Evaluation Template spreadsheet for guidance on estimating your ideal fund size.
Connectors
One of the best ways to meet new Limited Partners is by utilizing existing relationships within your firm to those who can connect you to potential investors. Connectors are typically well-connected individuals within Venture Capital who can open their networks to enable you to fundraise efficiently. They can become one of your greatest assets when fundraising.
Connectors allow you to leverage and add more nodes to your network and exponentially increase your ability to meet and raise capital from Limited Partners. These can be Founders, other Venture Capitalists, Limited Partners, and anyone who can connect you to a pool of High-Net-Worth Individuals (HNWIs) that are willing to invest in the asset class.
Refer to our guide on ‘Utilizing Connectors‘ for a comprehensive breakdown to mastering this powerful fundraising method.
Events and Conferences
Events and conferences are a relatively good way to expand your network. However, your primary use of venture conferences is usually to pitch to your LPs who have made some level of commitment. Though conferences such as Slush, TechCrunch Disrupt, South by South West, and RAISE can be a great medium for pitching LPs, it would be a sub-optimal strategy to attend them for the sole purpose of finding new LPs. This is a costly mistake made by some new fund managers and can divert them from their fundraising efforts. As stated before, a large bulk of your investors typically come through 1st and 2nd-degree connections you have as well as your close acquaintances, so this can be your initial area of focus.
These conferences will play a part in your fundraising process, though it will be much later when you have found a significant amount of LPs and are in the process of pitching. When you have substantial interest from LPs, you can refer to our ‘How to Pitch Limited Partners’ article, which shines a light on this process and guides you in pitching these LPs.
Cold Outreach
Even when you are not fundraising, you can aspire to expand your network and build new relationships. Cold outreach can be an effective way to do this and is utilized by some of the most seasoned Venture Capitalists. The caveat is that running a cold outreach campaign can be meaningless unless implemented correctly. In your cold outreach, you can target HNWI and Family Offices, as typically, they are the most suited investors for new fund managers. This is outlined in our article “The Best LPs for New Fund Managers“. Typically, large institutional investors and endowments do not invest in new fund managers who manage small funds. Therefore it is un-optimal for you to focus your efforts in building long-term relationships there.
When focusing on HNWIs and Family Offices, you can be very particular in whom you target and your messaging as to not generally solicit. Remember that the goal here is to build long-term relationships and not advertise your fund to the masses. As previously mentioned, LPs can be very illusive and hard to find on the internet. To master the process of finding new LPs and converting them, refer to our other guide in our How to Find LPs series on ‘Conducting Cold Outreach.’
This content is provided by VC Lab, the venture capital accelerator.
The free 16 week VC Lab program provides guidance, structure and a network to complete a fund closing in 6 months or less. Since mid 2020, VC Lab has helped launch 83 venture capital firms around the world.