Annual Planning for VCs

A proven methodology for fund managers to set goals, align stakeholders, and achieve measurable results

Watch the full discussion: Venture Underground Podcast

Try the AI Annual Planning Toolkit: Decile Hub

Why Annual Planning Matters

The opening weeks of the year are some of the hardest to fundraise. LPs and founders are slow to respond, and if you try to do a lot of outbound work, you’re essentially pushing a string. So use this time to make an annual plan instead.

The six-step methodology outlined below is actually pretty easy and quick. Living it all year may be the hard part. But when you know where you’re going and what you want to accomplish, a motivated team can achieve anything.

A good annual planning process can align all of your stakeholders around a common direction for your fund. More importantly, it can help engage and motivate your entire team and keep everyone focused on the desired results.

Step 0: Outline Your Three-Fund Plan

Before diving into annual planning, you need to know where you’re going. When you’re raising your first fund, you can be so focused on just raising that fund, but you really have to be focused on more than that.

You’re building a firm, not just a fund.

You should have targets for what you want to achieve in the current fund because if your current fund doesn’t do well, you’re probably not going to get a bigger multiple on your next fund. That will put a lot of pressure on your next fund to perform for you to stay in the venture business.

The Math: Fund Sizing

You can increase each fund by a range of 2 to 5x.

• $10M Fund I → $20-50M Fund II → $40-250M Fund III
• $5M Fund I → $10-25M Fund II → $20-125M Fund III

Start by asking: What’s the fund size I want to get to by fund three? Then work backwards.

For example, if you’re at a $10 million fund and you want to get to $100 million by fund three, there are quite a few paths to get there. You could double fund one and then quintuple fund two. Or you could quintuple fund one.

Key insight: The smaller your fund size, the easier it is to get the multiple and return capital. The likelihood of you 4-5xing a $5 million fund is higher than doing the same on a larger fund.

How to choose your fund size:

• If you have amazing deal flow and confidence you’ll knock it out of the park → smaller fund
• If you’re less confident in deal flow but have good fundraising dynamics → $10 million is safer

Early Indicators of Success

Can you get out of the J curve and into positive returns? How long did that take?

• Some managers: Less than 1 year
• Most managers: 1-3 years
• If you’re 3+ years in and still in the J curve: Be concerned

Hacks to accelerate out of the J curve:

1. Warehouse deals that are already marked up to bring value to the current fund
2. Sell in secondary markets to get DPI faster
3. Come in a little later on deals so you’re closer to the next markup

If you can get better returns and DPI in fund one, that sets you up to get 3-5x into fund two.

Step 1: Conduct Stakeholder Interviews

Always start annual planning by interviewing all of the stakeholders for your business.

The Concentric Circles Model

• Inner circle: Your team
• Second circle: Venture partners
• Third circle: Portfolio companies and LPs
• Outer circle: Industry contacts, potential investments

How to run stakeholder interviews:

• Spend 30 minutes with key stakeholders individually
• For larger organizations, arrange group calls
• Ask if you can record the meeting so you can be fully present (you might hear more the second time you listen)

Questions to ask:

• “What would you like to see happen next year?”
• “What would make you proud that we could accomplish?”
• “If there was one thing we did this year that you would be really excited about and tell your friends about, what would that be?”

This can be one of the most enjoyable parts of the planning process. Push people to propose any idea, no matter how crazy.

Remember: Your portfolio companies are your product. Your LPs are your customer. You always serve the customer.

If you start hearing feedback from LPs like “maybe you should broaden your thesis,” you’re going to have to seriously consider it.

Step 2: Create an Organizing Theme

No matter how complicated or layered your annual plan is, there is normally some underlying thesis or principle that unites your vision. Reflect upon the various conversations and many ideas, synthesizing them into one rallying cry for the year.

How to find your theme:

1. Take all notes from stakeholder conversations
2. Organize them into categories (by business line or activity)
3. Break categories into high-level projects
4. Organize by priority (ideas you hear repeatedly take priority)

There is usually an overwhelming thing you’re hearing over and over again, but it might not be said in the same way you expect. No one’s going to say “you’re doing deals too slowly.” You have to deduce the theme from messy feedback.

Your Rallying Cry

Once the theme becomes apparent, coin a rallying cry. Keep it simple: one or two words that are easy to remember.

Examples:

• LPs and founders want more communication → “Communicate”
• Need to improve operations → “Systems”
• Focus on portfolio support → “Value Add”

Important: You want ONE overarching theme. You can focus on more than one thing if they’re thematically related, but not too many. Too many themes will be a diversion and distraction.

Step 3: Establish Measurable Goals

Once you have the organizing theme, turn everything into measurable goals. Aim for three to five measurable goals, with bullet points that give more specificity about target numbers.

What Makes a Goal Measurable?

❌ “Improve LP relationships”

✅ “Have 1,000 LPs by end of year making one or more investments we brought into the network”

Either you do 250 or you don’t. That’s measurable.

If your theme is “Communication,” your goals might be:

• Set up a monthly newsletter for different audiences (founders, LPs)
• Produce a high-quality quarterly report with thoughts and analytics
• Host one event per quarter for LPs and one for founders
• Do a powerful annual general meeting (AGM) in person

Common Focus Areas for Fund Managers

Scouting Institutional LPs

This could take most of a year. You’ve got to get all your books and records in amazing shape, build extensive target lists, find connectors, prepare data rooms, and create deal memos at a quality level you might not have done in fund one.

Improving Deal Flow

Ask yourself: Have I seen the unicorns coming out of my sector? If there were 10 seed companies that became unicorns and you saw none of them, you have a deal flow problem. That could take the whole year to fix.

Back Office Operations

A lot of managers don’t do their back office well. They don’t manage it well, don’t take it seriously, and often delegate it to incompetent third parties. This is the number one thing managers procrastinate on.

Maximizing Current Fund Value

Make sure you’re out of the J curve with some DPI before opening your new fund. Go all in on the portfolio this year. Get DPI when you can, get markups where you can.

Step 4: Outline Actionable Plans

Now you have goals and measurability. But what are your actionable plans? Break goals down into really actionable steps.

Example: Communication Theme

Goal: Set up monthly newsletter

Actionable steps:

1. Evaluate newsletter system options
2. Select provider
3. Load contacts
4. Design templates
5. Establish cadence

Example: Deal Flow

Goal: Expand deal sourcing network

Actionable step: “Meet one new potential source every week”

It’s not a heavy lift. One extra coffee per week. But if you compound that through the year, you end with 50 new sources. That compounds year on year on year.

Look for compounders.

Two categories of planning documents:

1. Processes: Growth will break existing processes or require new ways of doing things
2. Specifications: Growth will usually require new technology

Run actionable plans in an “experiment” framework. Test processes or technology, measure results, then roll out or roll back.

Step 5: Develop Tracking Systems

Last but not least, you’ve got to track. Write everything down into a plan and look at it regularly to ask, “How am I doing?”

Three Components of Effective Tracking

📅 Calendars

For each major measurable goal, produce a quarterly calendar of key milestones.

📊 Dashboards

All team members own a piece of the measurable goals. It’s important that the whole team sees their individual and collective progress. Dashboards don’t need to be pretty. Just show the goal, the owner, and longitudinal data.

📞 Meetings

Set up weekly, bi-weekly, and monthly meetings related to goals and plans.

Best Practice for Plan Revision

• Track things monthly and quarterly
• Revisit the plan at the half-year mark
• Quarterly revision = too fast
• End of year revision = too slow

For most fund managers, plans won’t change that much over a year. Funds move at a different pace than startups.

Conclusion

A good annual plan will take a couple weeks or more to complete properly. Expect to invest approximately 15 to 30 hours during the planning period. A lot of the work is taking time to reflect.

The beginning of January is a great time for annual planning. You’re pushing a string when it comes to LPs, and even founders are slower. But when you use this time to call people and check in, that works really well.

Once you begin, it’s actually quite fun. Don’t procrastinate. Get started and it will snowball and become a plan.

The best time to start this is January 1. The second best time is the moment you finish reading this article.

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