Starting a venture capital fund is the dream of many who have the goal of impacting the world. Creating a VC fund, though the aspiration of many ambitious individuals, is something that a tiny fraction of people succeed in doing. To successfully launch a venture fund and convince investors to part ways with their money, one to master several dark arts. You must perfect fundraising, become an expert in your field, source great deal-flow, learn fund mechanics and have a compelling thesis/alpha.
A compelling thesis can take months to conceptualize and sometimes even years to actualize. At VC Lab, we’ve helped many fund managers to raise funds in a fraction of that time. We’ve found that to develop an LP backable thesis, one has to come up with a compelling case of how the future of a certain market will look as a consequence things such as a new technology, business model, event…etc to gain outscaled returns. You also must demonstrate that you are a good custodian of LPs money by leveraging your track record of success and execution as well as your network.
As stated in our template we recommend you use this format in forming your bite-size sample thesis.
“[Fund Name] is launching a [$x MM] [Stage] venture fund in [Country / City] to back [Geography] [Sector / Market Companies] [with Secret Sauce]”
1. Fund Name
Your fund name is the first piece of insight and data LPs learn about you. It should be snappy and convey a part of your thesis. It can be rather difficult to come up with this name initially. We recommend using the last name or a colour name as a placeholder. As you develop your thesis, your fund name can become clearer and you can pick one then.
2. Fund Size
Your aimed fund size should be around 10x of what you believe you can raise from your contacts/networks with ease. It’s important to remember that this is a goal and not set in stone. It is often better to close regardless of when some investors inevitably drop out. At times closing your fund is far more important than meeting this goal.
3. Stage
The stage you focus on is very important as it is typically directly correlated with your fund size. For example, larger funds have a broader focus on stage and location while new funds focus on local early-stage deals.
In emerging markets, funds tend to be generalists, while in larger markets, a larger variety of funds e.g. thesis led funds are found as well as large cross stage generalists. This is due to the number of high-quality deals in these larger markets. In small markets there are only a handful of high-quality deals so funds tend to start as generalists.
4. Country
As discussed, the size of the market and fund play a huge role in your value proposition to LPs. Fund managers should also take into account the specific city/area they will focus on finding deal flow in. This is important as most LPs are only active in specific regions and will allow them to find a fit quickly.
5. Geography
This is important to specify as again it will help filter relevant LPs quicker and allow you to find a fit much faster. It’s also good for founders as you will receive more relevant inbound deal flow if your geography is clearly stated.
6. Sector / Market Companies
Much like VCs, most LPs carefully curate their portfolios in accordance to their strategies. They are very selective in how much exposure they have to certain markets through their investments. You should clearly state which sectors you will focus on and what type of companies you will invest in.
7. “Secret Sauce”
What is your unique insight or strategy to achieve out-scaled returns? Your secret sauce should set you apart from other budding fund managers. You should show why you are the uniquely qualified and why the market opportunity is important right now.
Read more in our ‘Pre-Curriculum to Launching a VC fund‘