Starting a venture capital fund can be complicated without the proper guidance or tools. Below are the most important steps an aspiring general partner should take to launch and close an enduring VC fund.
1 > Draft a Compelling Thesis
Developing a winning Thesis is important to attract Limited Partners (LP’s). The Thesis provides important information that a LP needs to know, such as fund size, stage, geography, and focus areas. In addition, a strong Thesis highlights how the fund manager or managers are uniquely qualified to launch a venture capital fund in a specific sector and geography by showcasing the relevant track record.
2 > Create a Strong Track Record
LP’s look for domain expertise and a strong track record as part of their process to evaluate investing in a fund. A strong track record can be built at any time by angel investing or starting advisory work with high-quality and fast-growing startup companies. The ideal track record can be quantified with metrics, and a rank-ordered list of the metrics that LPs consider important include:
- Total exit value of a previous investment portfolio
- Markups, IRR, or MOIC of a previous investment portfolio
- Total funding raised for an advisory or investment portfolio
- Measurable sales increases of an advisory or investment portfolio
- Notable fame or exposure that can be quantified
- Number of companies helped or advisory programs run
- Quantifiable network size or network access
- Years of experience
3 > Create Clear Materials
After the Thesis, the most important fundraising tool for an emerging manager is the Fund Presentation. Most strong Fund Presentations have 15 slides with a white background, clear titles, and less than 50 words per slide. Emerging managers are also expected to have a brief two-page written Fund Overview, a Fund Model, and a Data Room with supporting information, such as bios.
4 > Pitch Hundreds of Leads
The average fund by a new or emerging manager requires over 250 LP pitches to close, which is why it can take months or years to close. Cast a wide net of potential investors and partners to hone in on the right LPs for your fund. First, focus on building and enhancing your network by attending events, social networking, and reaching out to friends and family. Practice your pitch with close confidants and engage those who are helpful connectors. As you start to gain success pitching, develop an archetype for the LPs that commit to investing, and target more LPs in the archetype. . Pitch as many as you can a week, though ensure that you avoid General Solicitation.
5 > Run a Fast Closing Process
Once you secure over 10% in validated interest from LPs, then start a fast closing process. Don’t waste time recruiting vendors, engaging lawyers or thinking about domicilies until you have real and quantified interest from LPs, as this common mistake is both expensive and distracting. When you have real interest, then move quickly to close. A closing process has the following high level steps, and can take a couple of months:
- Secure Formation Vendors
- Engage Committed Limited Partners
- Review the Closing Materials
- Setup the Entities and Bank Accounts
- Secure Limited Partner Signatures
- Initiate the First Capital Call
Conclusion
By following these steps in order, you will be in a strong position to launch a venture capital fund. The most common mistakes that new and emerging managers make is that they do things out of order, which wastes both time and money. As one example, if you build a Fund Presentation without finalizing a strong Thesis, then you need to change the deck regularly as you refine the Thesis. As another example, if you engage a law firm before you have real LP interest, then you are paying fees long before you need the service.
Venture Roadmaps Event
On October 11th, 2022, VC Lab hosted Venture Roadmaps, a live discussion on the important steps to launch a venture capital fund. The event featured Adeo Ressi, CEO, and Mike Suprovici, Head of Acceleration at VC Lab. You can watch the recording here:
About VC Lab
VC Lab (https://GoVCLab.com) is now open for admissions to Cohort 9. The accelerator is an intensive online program that helps exceptional venture capitalists avoid costly mistakes and launch Venture Studios, Pre-Seed, Seed, and Series A Firms. Emerging Managers who need tactical advice and support are invited to join VC Lab Cohort 9, the leading, global venture capital accelerator.
For admission into Cohort 9, complete your application before the early admissions deadline (October 9, 2022,) by applying here.
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