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The Female Venture 50

To promote more women in the field of venture capital, VC Lab is hosting the first Female VC Forum on May 25th, 2022. Register here.

Loretta

As a Female VC with a tech edge, I wanted to become the kind of investor that I would have liked to see in front of me. Representation matters.

Loretta Tioiela, Founder & Managing Partner, Next Sequence

VC Lab is introducing a set of industry benchmarks and incentives to change the face of venture capital. Our first initiative is Female Venture 50. 

As the name implies, this program is focused on ensuring that there is an equal number of women working as peers to men in the global venture capital market. In 2022, less than 5% of leadership positions at venture capital firms worldwide are held by women.

I’ve met countless, experienced women General Partners who echo stories of belittlement and doubt, regardless of their stellar track record and exemplary experience.

Diane Yoo, FilKor Capital

By the end of 2023, we would like to see the following annual objectives hit within the 200+ venture capital firms that VC Lab accelerates per year:

2023 Objectives: New Manager VC Firms 
45%1+ female team members in at least a venture partner capacity
35%1+ female investment decision maker
25%1+ female Managing Partner
15%All Female Managing Partner(s)
VC Lab Targets for New Manager VC Firms accelerated through the end of 2023

In addition, six female lead venture capital firms will receive complimentary access to the Decile Track each year. The program offers hands-on coaching from fund formation leaders, exclusively available to the 10% of the best new managers worldwide.

Join the Female VC Forum

Interested in the topic? Join our first Female VC Forum on Wednesday, May 25th.

The current VC Lab stats for female participation in venture capital funds are:

2022 Actuals: New Manager VC Firms 
27%1+ female team members in at least a venture partner capacity
18%1+ female investment decision maker
16%1+ female Managing Partner
9%All Female Managing Partner(s)
VC Lab Actuals for New Manager VC Firms accelerated to date in May, 2022

Beyond female participation in the workforce of venture capital, it is our goal to ensure equal leadership in the management of VC firms and in the VC industry. We are here to help.

The time has come to change the face of venture capital. The industry has a poor reputation among many talented entrepreneurs, deservedly so. We are going to change it.

Adeo Ressi, CEO of VC Lab
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Insights Resources

Venture Capital Fund Pitch Decks

Specialized pitch decks are required for venture capital funds that are in process of raising and closing on capital from limited partners.

The pitch decks have certain requirements, like proper legal disclaimers, and they also must comply with standards that limited partners have come to expect. Today, limited partners look at slides for less than a minute on average, so the purpose of each slide needs to be clear and the main points per slide need to tell a narrative.

Here are five hacks to help your venture capital fund presentation stand out with limited partners.

1. Reinforce Your Thesis

Write a one sentence Thesis, and then ensure that every point and every graphic on every slide reinforces that Thesis.

The point of the presentation is to explain how the fund is uniquely qualified to execute your fund Thesis. Tangential information can dilute or confuse the message. As a tactic, paste your one sentence Thesis in a small font at the top of every slide in your presentation, and then read or review everything on each slide to ensure that it matches the Thesis. For example, if your Thesis is for a deep tech fund, it does not make sense to put your high school lacrosse experience as a bullet on the Team slide.

2. Use Simple Slide Titles

Use common one, two or three word titles for every slide, and avoid being funny or creative with slide titles. 

Limited partners often look for specific information to confirm interest in a fund, since most LPs have investment criteria that they are looking to fulfill. By keeping the slide titles simple, it allows limited partners to find and focus on the information that they need. Common slide titles include Thesis, Team, Track Record, Portfolio, Market and Economics. Avoid slide titles that resemble phrases or sentences like, “how we have the best portfolio” or “our unique market knowledge,” since this can be confusing to limited partners about what is contained on the slide. For a full list of common slide titles and content, read on.

3. Keep the Slides Short

Avoid using more than 50 words per slide, using diagrams, pictures, charts or numbers to replace words.

The average limited partner spends less than one minute per slide, and our data shows that limited partners spend less time on slides with more words. Overwhelming a limited partner with a lot of information can cause them to skip the slide. Our experience shows that there should be one major takeaway point per slide that is reinforced with the content. For example, on a Team slide, if you have three Partners and you want to make the point about deep tech expertise, use bullets under the team members that show they are leaders in deep tech. For example, “Ph.D. Physics, Carnegie Mellon” is a good bullet, or “12 Patents in Robotics” is another good bullet. See how they are short?

4. Include Disclaimers

Add a legal disclaimer for the whole presentation in the front or the back, and disclaim and forecasting slides about forward-looking statements.

Short and appropriate legal disclaimers are normally required and help the general partner look more professional as a money manager to limited partners. The absence of disclaimers may make a credible limited partner suspicious. Most venture capital decks have one overall legal disclaimer for the jurisdiction that you are in, often placed in the back, and the forecasting slides normally have a footnoted disclaimer about forward-looking statements. These are usually secured by your attorneys to comply with local and regional fundraising laws. You can read some sample disclaimers below.

5. Test the Narrative

Read the whole presentation out loud in less than two minutes by stating the main point of each slide to refine the narrative flow.

Venture capital fundraising decks have a narrative flow that emphasizes why the fund is uniquely qualified to execute on the Thesis. This story can be told in many different ways depending on the strengths (and weaknesses) of the team and strategy. For example, a moderately talented team launching a fund in a market with little funding will likely find the best deals, so they can focus on describing how the “Market” is strong and growing. Quickly say out loud the main point of each slide to evaluate the narrative effectiveness of your presentation. Try moving the order of slides around to see if you can build a stronger narrative and create a better presentation flow.

These five tips will help to make a much more effective presentation for a venture capital fund. Remember that many limited partners still print out presentations, so avoid having color backdrops and avoid a lot of photos. Put your contact information on the title slide, version each release and include page numbers.

It is not uncommon for general partners to edit the fund presentation multiple times per week during the fundraising process. As the versions improve, the closing rate increases. Good luck!


Bonus: VC Slide Titles & Content

Below is a list of the most common slide titles and content in venture capital fund pitch decks.

  • Title has a tag line, versioning and contact information for the key people pitching.
  • Thesis just has your one-sentence Thesis.
  • Team has up to three Partners per slide, plus additional slides for Venture Partners, Advisors or other key individuals involved in fund decision making.
  • Track Record highlights one, two or three relevant deals that you and your Partners have invested in or helped to grow, including a logo of the company
  • Value Add describes the value your fund will provide portfolio companies or investments, possibly with a diagram
  • Warehouse highlights any deals that you have done or are planning to do with a logo of the company
  • Allocation shows in a table the number of deals that you will do organized by stage with the estimated investment, valuation and ownership.
  • Returns shows the type of returns that you anticipate from hypothetical portfolio companies organized by small, medium or large exits across three columns.
  • Liquidity shows up to three projected fund outcome scenarios as a multiple or as IRR,
  • Market provides a simple chart or table to demonstrate the attractiveness of currently investing in your target market segment
  • Economics has the fund size and stage at the top and that provides a table with the fund economic terms, such as the Minimum Investment Amount, Management Fees and Carried Interest, with the name of the term on the left and the economic term on the right
  • Disclaimer has acceptable legal language for your home country to avoid liability for any statements
  • Thank You has the tagline of the fund, the target closing date, and the contact information for all of the General Partners,
Optional VC Slides
  • Strategy – what deals that you target
  • Operations – how you close and service deals
  • Competition – notable funds doing similar things
  • Partners – any strategic corporate or funding partners
  • Advantages – key selling points to target investments
Bonus: Sample VC Disclaimer Language

Below are a couple sample disclaimers for reference purposes. Please consult with an attorney before using.

Standard Fund Disclaimer

“The information herein is strictly confidential and is intended for authorized recipients only. The content of this presentation is shown for information purposes only and is not intended as investment advice, or an offer or solicitation with respect to the purchase or sale of any security. The strategy presented herein represents the strategy of the General Partner of the Fund as of the aforementioned date and may vary at the discretion of the General Partner. There is no guarantee that any investment objective will be achieved. Past performance is not indicative of future results. Actual results may differ materially from those expressed or implied. Recipients should not assume that any companies identified in this presentation, are or will be, investments held by the Fund. Any projected returns presented herein are shown for illustrative purposes only. There can be no guarantee the Fund will achieve these results. Venture investing is risky and you could lose some or all of your investment.”

Forward Looking Statement Disclaimer

“The information contained herein constitutes forward-looking statements. We assume no obligation to update, and you should not unduly rely on such statements.”


Categories
Resources Insights Legal Templates Venture Share

New Venture Partner Template

Overview

Venture Share is a template agreement for venture capital firms to quickly engage top Venture Partners worldwide. The following is an outline of the topics covered:

Venture Partners
  • Venture Partners are part-time members of a venture capital team.
Model
  • Venture Partners are compensated with carried interest in a fund.
Activities
  • Venture Partners help with 5 types of activities at a fund: executive functions, fundraising, strategic, operating and portfolio assistance.
Compensation
  • Venture Partner compensation ranges based on the type of activity and the seniority of the individual.
Venture Partner Compensation 1
Venture Partner Compensation Ranges
Negotiation
  • There are 4 steps to negotiate a Venture Partner engagement using Venture Share.
Agreement
  • Download the Venture Share Agreement to engage and compensate Venture Partners.

Thousands of new Venture Partners are needed to fill the ranks of emerging venture capital firms worldwide.

Adeo Ressi, CEO of VC Lab

A Venture Partner is a part-time team member of a venture capital firm, providing strategic, operating and portfolio support. Venture Partners are experts in a field, and they are compensated with a share in the upside from venture capital firms, called carried interest.

VC Lab has developed a free Venture Share Agreement (see below) that is designed to be used by venture capital firms and Venture Partners alike to quickly start working together. The template agreement is designed to specify the duties and compensation of a Venture Partner by checking boxes.

Venture Partners can apply for roles at hundreds of funds worldwide with one application at a new VC Lab job portal. Candidates submit a resume and cover letter (apply here), and the next batch of placements will begin in April of 2022.

Venture Partner Model

Venture Partners are normally compensated with carried interest, versus receiving a salary. Carried interest or carry is generated from the fund performance, and it aligns incentives well, since Venture Partners only get compensated when the fund has positive returns. Here is an example to explain how it works.

In this hypothetical situation, there is a Venture Partner with 5% carry in a $10 MM fund. The fund has 20% carry from the limited partners, which are the investors. The fund returns $30 MM, and all returns over $10 MM have the carry of 20% deducted. So, we take 20% of the $20 MM, which is $4 MM, and we then take 5% of $4 MM for the Venture Partner, which is $200,000. In this hypothetical, a 5% Venture Partner position will earn $200,000. 

Fund models commonly project between 5x and 7x, which is greater than the 3x above. A Venture Partner will normally put in a few hours per week over a couple of years, and then get paid over ten years as portfolio companies exit in the fund.

Venture Partner Activities

There are five major types of activities for Venture Partners defined in the Venture Share Agreement:

EXECUTIVE

Executive Venture Partner assists with the management of General Partner:

  • Complete due diligence on potential investment opportunities.
  • Expand branding on social media and help with the overall exposure of the fund.
  • Help complete investments into target portfolio companies.
  • Serve as a director or advisor to target portfolio companies.
  • Source deals from pre-agreed networks and channels.
FUNDRAISING

Fundraising Venture Partner assists General Partner with fundraising activities:

  • Coordinate follow-up between interested investors and General Partner.
  • Create awareness of the Fund among desired target audiences.
  • Identify contacts that are suitable for the Fund’s fundraising pipeline.
STRATEGIC 

Strategic Venture Partner provides General Partner with credibility by providing their knowledge and expertise in an industry or subject matter:

  • Advise General Partner on strategic matters in the Venture Partner’s area of expertise.
  • Identify publicly they work with General Partner.
  • Share news and information with their relevant networks to help General Partner.
OPERATING

Operating Venture Partner provides day-to-day assistance with activities related to the management and operations of the Fund, which may include marketing, accounting, finance, legal, diligence or other back office support:

  • Assisting General Partner to increase the value of the Fund and support any stakeholders.
  • Provide back office support.
  • Respond to inquiries from General Partner.
PORTFOLIO

A Portfolio Venture Partner works on one or more deals where they are actively involved in the management of the investment. 

  • Support the onboarding and growth of a portfolio company in the Fund.
Venture Partner Compensation

Venture capital firms have a range of compensation for the different types of activities performed by Venture Partners. VC Lab surveyed a few hundred venture capitalists to identify the generally accepted ranges, which is used in the Venture Share Agreement:

Venture Partner Compensation with the Venture Share Agreement

Base CarryMiddle CarryAdvanced Carry
Help MonthlyHelp WeeklyHelp Daily
Executive3%5%10%
Fundraising2%4%6%
Strategic1%2%4%
Operating1%2%4%
Portfolio 0.1%0.5%1%

The base, middle and advanced carry levels relate to the time commitment of the Venture Partner, as well as their seniority. 

Venture Partner Negotiation

The Venture Capital Firm and the Venture Partner can quickly agree on core economic terms using the Venture Share Agreement. There are four steps.

  • First, select the relevant activities that a Venture Partner will perform (like above). 
  • Next,  look at the “Venture Partner Compensation Guidelines” table for the highest category of any activity, such as Operating or Executive. 
  • Then, determine if the Venture Partner is helping monthly (Base Carry), weekly (Middle Carry) or daily (Advanced Carry).
  • Lastly, decide on the years of vesting for the carry, the duration of the vesting cliff and whether expenses will be reimbursed.
Venture Share Agreement

The Venture Share Agreement is a free template to quickly structure a Venture Partner relationship. It can not be signed until all of the entities are formed. It can be used for negotiation before forming the entities.

Version 1 of the template focused on a United States domiciled fund in Delaware is available below: 

NOTE: In the Venture Share Agreement, Venture Partners are shareholders in the General Partner entity for compliance with U.S. 409a tax regulations

Post questions on the Venture Share Agreement in the comments.

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Insights Resources

Venture Trends Update

2022 has been an intense year.

Venture capital continues to outperform other asset classes. VC Lab wants to hear what you think are the biggest trends in venture capital for Q2 of 2022.

First, choose 3 trends in the survey below.

Then, discuss the trends on March 17th, 2022.

VC Lab is hosting an exclusive online forum for General Partners and Limited Partners on March 17th, 2022. Each of the top voted topics will have a table at this event, where peers from around the world share their views for a global perspective in the topics.

What do you think?

Results are completely anonymous with no registration.


Add a heading 19
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Insights

VC Lab Cohort 7

Applications are officially open for Cohort 7 of the venture capital accelerator by VC Lab.

The goal is to have all participating managers close funds during or before Q4 of 2022.

The full schedule is available here, and the link to apply is below:

VC Lab is the premiere free program to launch and grow a top decile venture capital fund or venture studio. Thousands of new and emerging managers from around the world have applied to previous Cohorts, making the application process competitive. 

For the best chances of admission to Cohort 7, applicants will be asked to have:

(1) a strong application video

(2) a well-constructed investment thesis

(3) a referral from alumni, if possible

Applications are processed in the order that they are received, giving early applicants an edge.

VC Lab Outpacing
Actual and projected venture capital firm launches from the VC Lab accelerator.

VC Lab will double the number of venture capital firms launched worldwide in 2022. Portfolio venture capital firms have already completed hundreds of investments, achieving early fund multiples by funding leading startups worldwide.

VC Lab Stats
VC Lab accelerator statistics through Cohort 4. Cohort 5 and Cohort 6 are currently operating.

VC Lab is working to help as many managers as possible launch and grow enduring venture capital firms. To this end, we are hosting a series of free events:

Inside VC
6 Insights to Build a World-Class VC Anywhere

Venture Trends
Discuss Venture Trends with GPs and LPs (Online)

The Early Admissions Deadline Cohort 7 is set for April 10th, 2022, and the Final Deadline is May 15th, 2022.

Note that the venture capital accelerator is a closing program, not a learning program. If you are not in a position to close a fund within 2022, then you may want to consider a job at VC Lab. Job openings at VC Lab are listed here.

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Insights

Minimum Investment into a VC Fund

Raising a venture capital fund can be challenging regardless of how many times you’ve done it. Though the process certainly can get relatively more manageable each time, fund managers may want to set out a well-thought-out plan in each of their fundraising campaigns.

When strategizing fundraising, a key factor to consider can be the minimum investment threshold. This can be an integral concept for first-time managers as a threshold may help manage and optimize time interacting with potential investors  It can also help managers build traction and run an efficient fundraising campaign.

Table of Contents

What is a ‘minimum investment size’?

Venture capital funds commonly have a minimum level of investment they are willing to take from limited partners. This is due to matters of efficiency in fundraising and fund administration / operation. Those seeking to become investors in the fund typically have to meet this threshold. They do this by ‘committing’ the required amount of capital set forth by the fund managers as opposed to investing a sum of their preference. 

Why have a minimum ticket?

To get to a quick close and run an efficient campaign, fund managers often set minimum thresholds as part of their overarching fundraising strategy. At times they adjust this level depending on the closing and the traction of the fundraising campaign. Managers also do this to manage the number of LPs and avoid operational / administrative challenges. It can be important to note the connection between minimum ticket thresholds, the desired fund size, and the number of investors in the limited partnership. 

Refer to the following article to further examine the relationship between minimum ticket sizes and ‘The Ideal Number of LPs in a Venture Capital Fund

Threshold guidelines

min investments
Guidelines for minimum investments into a new VC fund

Fundraising strategy

Typically, the larger the fund, the higher the investment threshold. As shown above, GPs may want to consider adapting their fundraising strategies along with the number of closings. The strategy for a first close can initially be to focus on small checks from immediate HNWIs / connections. With each subsequent close, managers can gradually increase the threshold and shift their focus to larger LPs, who typically wait for funds to become operationalized. When utilized in the right manner, this strategy may be useful to gain traction and leverage momentum in your fundraising efforts.

The minimum investment ticket size can be calculated to account for the ideal number of LPs and the fund’s aimed size. An optimal number of LPs for a VC fund may range between 25 – 30. For matters of operation and administration, when setting a minimum investment threshold, it can be useful to set an amount as not to exceed 50 LPs.

For more information on how minimum investment thresholds tie into a fundraising strategy, refer to VC Lab’s article, ‘The Ultimate Guide to Get LPs.’

Other factors

When setting a minimum investment size, it can also be worthwhile for new managers to evaluate other relevant factors regarding their funds. This can be region, stage, and traction, to name a few. For example, the venture capital asset class is prospering in western countries like the US. However, in emerging markets such as Africa, LPs may be scarce and unwilling to invest significant capital into a new manager. In such cases, you might want to regard these additional factors when determining a suitable investment threshold for your fund. 

Another factor to consider can be local regulations. For example, not setting an adequate minimum investment threshold may sometimes result in the fund having too many LPs and consequently violating decrees set forth by local regulators. The SEC has placed limitations on the number of LPs an unregistered fund can have in the US. Exceeding this limit can cause burdensome administrative and operational challenges which fund managers typically want to avoid. 

Exceptions

As outlined in this article, there are a plethora of reasons why it is generally beneficial to have a minimum investment threshold. When thinking about making exceptions, considering these factors can aid your decision-making.

In some cases, fund managers may choose to reduce the minimum investment threshold for close acquaintances and family members. In such instances, you may want to consider the long-term implications for your fund. When doing so, it can be helpful to manage the number of exceptions in order to maintain the optimal number of LPs in the fund.

VC Lab runs accelerator, the four-month accelerator for venture capital firms and venture builders.

Cohort 6 starts in February and will help participants from around the world close on capital and start investing by June of 2022.

Learn more and apply here

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Insights

The Ideal Number of Limited Partners in a VC Fund

Many new fund managers ask us, “What is the optimal number of LPs in a VC fund?” Having powered the launch of over 100 VC firms worldwide, we’ve gathered valuable insights into the ideal number of investors for new funds, which we believe to range from 20-30 LPs. Intuitively, one might think that having a vast LP base is always advantageous. However, this may not always be the case, as this article will explore.

We’ve seen a tendency from new fund managers to aim for an extensive base of investors. Unfortunately, this can sometimes work against the GPs and cause burdensome operational and administrative challenges. On the other end of the spectrum, having too few LPs can lead to those investors potentially having unhealthy influence and authority within the fund.

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Opportunity Costs

When fundraising, it can be beneficial for new managers to set forth a clear plan of who they will target and understand the profile of investors they would like within the fund. For more information, refer to VC Lab’s ‘Ultimate Guide to Get LPs,’ which provides helpful suggestions for fundraising.

Too often, new fund managers focus on large institutional investors, which typically do not invest in new GPs or the relatively small funds they manage. At times, new fund managers also concentrate and spend time on investors who wish to invest relatively negligible amounts of capital which causes them to end up with an unnecessarily large LP base.

Combined, both can lead to an inefficient campaign and result in the fund failing to gain traction in its fundraising efforts. As capital allocators, fund managers can also garner an appreciation for the concept of ‘opportunity cost‘ in fundraising. Time spent on the discussed avenues of financing may lead to expending scarce resources and time in an un-optimal manner. Therefore, setting an appropriate ticket threshold can serve to benefit your time and help you focus on the right investors.

It can be provident for new fund managers to brush up on the decrees set forth by local regulators in their jurisdictions. This is because these institutions can often place limitations on the number of LPs funds can have without registering with authorities. Fund managers can strategize their fundraising efforts and develop a thought-out approach using this information. For example, some jurisdictions such as Luxembourg require extensive KYC and AML checks for LPs if they own more than 10% of the Limited Partnership. This can sometimes be a deal-breaker for some LPs as such processes require intrusive background and financial checks.

In the US, the Securities and Exchange Commission (SEC) requires VC funds that seek exemption from registration to follow specific guidelines, including avoiding general solicitation and the following portions within the Investment Company Act of 1940, which venture capital funds typically fall under. Consequently, having a large base of LPs may result in VC funds not gaining exemptions under the following sections in the US:

Section 3(c)(1) 

Fund managers that seek exemption from registration via section 3(c)(1) must ensure that the limited partnership consists of less than 100 limited partners for funds over $25m. Recently, the SEC changed regulations regarding the number of investors funds below $10m can have and increased the number to 250 limited partners. 

Under this exemption, limited partners must qualify as “accredited investors,” and fund managers must take reasonable steps to ascertain their accreditation status by conducting diligence on each investor. Accredited investor definitions vary with jurisdictions and local regulators; therefore, fund managers should check local decrees. In the US, the SEC, under Rule 501 of Section D, defines accredited investors as persons with a net worth of over $1m (excluding the value of the persons” primary residence) or have a gross income of $200k, or joint spousal gross income of $300k for at least two years in a row. More on accreditation requirements here.

Section 3(c)(7) 

To gain SEC registration exemption using Section 3(c)(7), funds must be comprised of “2,000 or fewerqualified purchasers, where each investor must own $5M or more in investments. Again, fund managers “must” take reasonable steps to ensure each investor’s status as a qualified purchaser.

Administrative Challenges

Taking into consideration the aforementioned regulations, fund managers who have an extensive LP base that exceeds the stated limits will be required to conduct individual diligence on the accreditation status of each investor. As you can imagine this can prove to be an operational challenge, especially when the focus of the fund manager is needed in other critical areas. Upon completing checks, fund managers will also require signatures from every investor to close the fund. Once again a broad LP base can cause friction for GP, who need to orchestrate an efficient process to co-ordinate with all of the LPs. 

Operational challenges

After closing, fund managers typically seek to keep investors informed by reporting the portfolio’s performance. Often they also have to manage individual queries regarding the fund and nurture long-term relationships with LPs by reporting on the performance of the investments.

Again, a more extensive LP base may mean that fund managers spend an un-optimal amount of time fulfilling their duties and accommodating LPs. There can be an opportunity cost in these scenarios as managers may not have enough time to evaluate startups, keep up to date with the ecosystem, and write checks on behalf of their investors. The bookkeeping tasks also increase with the LP base and should be taken into consideration by the GPs in the fund.

Summary

In the US, having a large base of LPs that exceeds SEC requirements can mean that such funds must register with the SEC. Typically, fund managers avoid registration as it can be a lengthy and complex endeavor. Additionally, fund managers must spend an exuberant amount of time navigating SEC regulations and conducting diligence on each investor with both of these registration exemptions. Consequently, fund managers should aim to have 20 – 30 LPs in their funds to run an efficient fundraising campaign.

VC Lab runs accelerator, the four-month accelerator for venture capital firms and venture builders.

Cohort 6 starts in February and will help participants from around the world close on capital and start investing by June of 2022.

Learn more and apply here

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Insights

The Ultimate Guide to Get Limited Partners

Integral to the success of launching an enduring VC firm is the ability to fundraise from LPs effectively. At VC Lab, we’ve created a set of free resources for aspiring fund managers to use. These resources are designed to provide clear insights and help GPs source, reach out and pitch limited partners. This article encapsulates all of the information fund managers need to run an effective fundraising campaign and get to a quick first close.

Note: Each jurisdiction has its own rules regarding general solicitation, and fund managers should make efforts to understand them when communicating with potential LPs and fundraising. Refer to VC Lab’s ‘Tips to Avoid General Solicitation‘ for more information. 

Table of Contents

Planning to fundraise

Fundraising is the single most misunderstood thing in VC

Adeo Ressi

Adeo Ressi, CEO of VC Lab, suggests that fund managers may want to consolidate fundraising to as short a period as possible, ideally three months or less. In running a focused and efficient fundraising campaign, it can be important to lay out a plan prior to fundraising. To do this, you might want to identify all of the relevant target LPs and engage with connectors in your network to get warm introductions. Refer to VC Lab’s set of resources on ‘Leveraging your Network’ for more information.

This involves gaining a good understanding of the LP landscape. As explained in our guide on ‘The Best LPs for New VC Firms.’ large institutional investors may not always be the best source of capital for new firms, and fund managers can be better served focusing on HNWIs. In your planning, you can also start warehousing deals to bring into the fund in preparation to showcase LPs. Read VC Lab’s guide to ‘Warehousing Deals‘ for more information.’  

Setting a fund size

At times, new managers look to raise larger funds to incite change in their domains which can sometimes work against them as they’re considerably more challenging to close. When starting a new fund, even experienced GPs who have managed vast funds opt to start small since they can close quickly and scale their fund size in due time. 

Typically, fund managers must get from 10%-20% of the fund for a first close. As you might imagine, it can be much more challenging to close 20% of a $50M fund compared to a $10M fund. As Paul Bragiel, experienced fund manager and mentor at VC Lab says, it can be prudent to establish a ‘Minimum Viable Fund.’ Refer to VC Lab’s free resource on ‘Evaluating your Network’ to calculate your ideal fund size. 

Some LPs also do not look favorably at large audacious first fund sizes either. In an interview with VC Lab, when asked about an ‘LPs advice to VCs,’ Court Lorenzini, LP in over 15 funds, stated that it could be a point of concern to see new fund managers raise too large a first fund. 

1st close strategy 

Importantly, you may want to approach each of your closings with varying strategies. For your first close, it can be beneficial to target HNWIs who are more likely to invest. 

You can start with smaller check sizes in your first close while highlighting your track record of success to gain traction. This is because larger LPs often wait for the fund to operationalize before committing capital. Therefore, by raising a large fund focused on large institutional investors, you may find yourself in a conundrum. This strategy often does not yield a successful outcome as GPs cannot gain momentum in their fundraising efforts when speaking with LPs. Refer to VC Lab’s guide for more information on ‘How to Pitch LPs.’

You may want to take time to consider the minimum ticket size for your first close relative to the ideal number of LPs in your fund, which is ideally around 30 to 50. Below is a guideline for ticket sizes for each of your closes.

Min Ticket Threshold 1
Guidelines for minimum ticket sizes

Gaining traction 

Fundraising is a momentum game

Adeo Ressi

Often, successful fund managers leverage a first close to gain momentum for their 2nd and successive closes. This can be an essential concept in fundraising as it can contribute to helping new managers to get traction and efficiently close their first funds. 

Upon a first close, you can start operationalizing your fund and deploying capital to construct a portfolio. When doing so, it can be beneficial to invest in high-profile companies that can generate a quick markup in valuation, preferably in time for your second close. By displaying markups, you can demonstrate two things from the viewpoint of LPs. Firstly, you de-risk the fund as your LPs can take advantage of the markups. Secondly, you can exhibit your ability to get great deal flow and pick outstanding startups. To gain a more in-depth understanding of the viewpoint of LPs, refer to Adeo’s insightful conversation with Court Lorenzini on ‘The LP’s Perspective’.

As mentioned in your second close, you may want to adapt your fundraising strategy and shift your focus to more prominent investors, such as family offices. As shown in our minimum investment guidelines, you can increase your ticket thresholds with each consecutive close.

VC Lab runs accelerator, the four-month accelerator for venture capital firms and venture builders.

Cohort 6 starts in February and will help participants from around the world close on capital and start investing by June of 2022.

Learn more and apply here

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Insights

Top 5 track records to launch a VC firm

VC Lab has helped launch over 100 VC firms on continents such as the Americas, Europe, Asia, Africa, and many more. We have worked with thousands of VC fund managers in this process and gained valuable insight into the past experiences and accomplishments that helps GPs launch enduring VC firms.

In our free accelerator program, we’ve seen fund managers leverage five critical areas of their track record to raise capital from limited partners. Through these, fund managers can create a unique thesis to capture value in the market and obtain the means to access great deal-flow and fundraise effectively.

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VC Lab’s insight

In our conversations with hundreds of aspiring fund managers, we’ve seen a multitude of GPs leverage their various sets of experiences and track records to raise from LPs. Refer to our data below to see the track records fund managers in VC Lab have leveraged and focused on in limited partner conversations.

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Pie Chart showing the track records utilized in theses of fund managers in Cohorts 4 and 5 of the free venture accelerator.

Notably, those in the program often look to leverage their past experiences in angel investing and community leadership, forming over 50% of Cohort 4 & 5.

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Pie Chart showing the track record utilized in the theses of VC Lab alumni who’ve successfully got to a first close.

The data of program graduates present intriguing insights, as seen above. It would appear that theses that leverage the fund manager’s track record on community leadership, advisor work, and angel investments seem to be beneficial in closing LPs and getting to a first close.

Leveraging your track record

You may be wondering how you can leverage your track record to raise funds from LPs. For a detailed guide to constructing a compelling venture capital thesis, refer to VC Lab’s guide “What is Your Venture Capital Investment Thesis.”

When looking to leverage your past achievements and track record, it can be beneficial to consider the LP’s point of view. The key can often be to look through the lens of how a particular experience or accomplishment can enable you to obtain excellent deal flow to activate your network in your fundraising process. Such factors often determine the success of a new fund manager and are criteria in LP’s decision-making.

Additionally, the theme of a compelling thesis can often be quality over quantity. When looking to leverage your track record, you may want to feature highly relevant information for LPs to focus on to deliver a succinct message. This theme applies to all backgrounds and track records and can be a common theme in all the track records outlined below.

Community leadership

Community leadership can be several related things in this context. For example, in VC Lab, we’ve seen fund managers who have organized and brought together a vast community of entrepreneurs, investors, and thought leaders in a particular domain. It can also mean having an extensive network of connections in your area of focus. 

A track record of community leadership can be compelling from the viewpoint of LPs and help you get to a first close. Having a quality network can often enable fund managers to obtain great deal flow and get allocations in competitive deals. It can also mean that you are an expert in a domain and can activate your network of connectors to fundraise effectively and add value to your portfolio companies. Read more on how to ‘activate your network and leverage connectors’.

Angel investments

As the data shows, a track record of successful angel investments can be effective in helping fund managers get to a first close. It can be essential to note that LPs often value the quality of your companies over the quantity of your portfolio. For example, suppose you have an outstanding company in your portfolio, such as Uber. In that case, it may be better to feature the company’s exceptional success instead of highlighting multiple investments that are all performing well.

Also, it may be best to feature angel investments related to your fund’s thesis. For example, if your fund is focused on B2B SaaS companies, highlighting your investments in consumer goods may not be entirely relevant from the viewpoint of the LPs. Therefore, it can be a good idea to include exits and markups in your area of focus. This can be helpful as it can signal your ability to invest and pick highly valued and well-performing companies, a skill that you can replicate as a professional investor and fund manager.

Advisor work

Advisors, in this context, are those who have helped companies scale and grow. When looking to leverage their track records, there are some potentially beneficial feats advisors can focus on to impress potential investors. For example, LPs are likely to place a higher emphasis on the caliber of companies you’ve advised and may want to understand how you drove results and markups with your actions and insights. 

If you have advised noteworthy companies with your expertise in growth and scaling, it can be helpful to quantify the results of your accomplishments. This can signal that you can replicate such feats again as a fund manager. You can highlight the network you have acquired in your advisory roles and your large sphere of influence in your domain.

Founder success

Interestingly, though success as a startup founder is a challenging and impressive feat to accomplish, preliminary data shown above suggests that it may not be the highest converting track record relative to some of the others. A simple explanation for this may be in the execution of demonstrating relevancy to the role of a fund manager to LPs. 

The challenge for founders may be to show their ability to investors. A good way to exhibit this might be to leverage and highlight your multiples, markups, and exists generated as a founder. This can be a good indicator of your ability to drive value in a company. It can also be a good way to present your domain expertise. 

Another value add you can show to your LPs is your great deal flow. For example, if you can demonstrate that other entrepreneurs require and value your expertise and often come to you for mentorship and guidance, you can signal to LPs that you have the right skill set to be a good fund manager and sought-after source deals.

Executive accomplishments

Those seeking to highlight their executive accomplishments may want to show their operations experience in their track record and thesis. As an executive, these can be accomplishments you drove and achievements that helped companies scale. When featuring such noteworthy feats, it may be a good idea to demonstrate how your achievements drove positive results and quantify your results. For example, perhaps you may have helped several startups land large customers which then enabled the companies to raise subsequent financings. Again, it may also be noteworthy to draw on your domain expertise and how you can leverage it to attain great deal flow.

The key theme in highlighting your track record can be your value add to founders, the network you’ve built, and your operational excellence. Operating as an executive in high-profile roles can often provide an arsenal and toolkit unbeknownst to new founders and can be an incredibly valuable asset for fund managers. You can leverage such experiences to help companies grow in your domain of expertise and may want to highlight it to potential investors in your fund.

VC Lab runs accelerator, the four-month accelerator for venture capital firms and venture builders.

Cohort 6 starts in February and will help participants from around the world close on capital and start investing by June of 2022.

Learn more and apply here

Categories
Insights

2022 is the Year of Venture Capital

The VC asset class is showing relatively strong growth amidst market uncertainties around the world, seeing historic returns while demonstrating unprecedented levels of liquidity and growth. Fuelled by a maturing ecosystem, investor asset reallocation, and a renaissance of new expert fund managers, VC has recently been the top-performing asset class and is expected to continue its strong performance in the years to follow.

Venture outperforming

As shown by Pitchbook’s data below, venture capital has outperformed every other major asset class in the last three years and has demonstrated noteworthy growth in the previous decade.

In this time, venture capital and the startups it backs have proven to be a valuable asset with many success stories visibly changing the world we live in today. Most people can feel firsthand the net-positive effects of venture capital, whether it is the convenience offered by food delivery and taxi-hailing services or the notable strides taken in electric vehicles and alternative meats, all of which are venture-backed.

New venture liquidity

Importantly, not only is the asset class showing high returns for investors, but we are also seeing increasing liquidity with a thriving secondaries market, estimated to be around $70B in the US. Consequently, venture capital’s previously inherent long time horizon is slowly diminishing, further cementing its attractiveness to investors and institutions. Also contributing to the unprecedented levels of liquidity is the sharp rise in the VC-backed startup IPOs in recent years. As shown by the data below, IPOs within the United States reached record high numbers, with 407 companies going IPO in 2021 generating $615B, while global VC-backed IPOs reached $1.38T.

Interestingly, these figures have not reached such levels since ‘The Sarbanes-Oxley’ act of 2002, which “mandated strict reforms to existing securities regulations,” making it much more challenging for companies to list publically. Around the world, prominent backers of VC are also seeing a much quicker time to exit; notably, in Asia, some companies achieve unicorn status in as little as two years and can exit within eight

Re-allocating to venture

Amidst these changes, investors worldwide are focusing on venture capital, which has consistently been delivering high cash-generating businesses. With the most recent crash in cryptocurrencies wiping over $1T in market value, investors are growing weary and choosing to reallocate capital to more productive assets, such as venture capital. This is evident in the rise in VC funding worldwide, which rose to 2021 to $671B. As shown below, both VC deal count and financing have nearly doubled year-over-year in the US, with early-stage first-time financings also taking a notable uptick.

Considerable levels of VC investment in 2021 have seen many new entrants and investors looking to increase the allocation within their portfolios to the venture capital asset class. This shift is multifaceted as both highly sophisticated institutions such as endowments as well as High Net Worth Individuals are weighing up their exposure to the asset class and reallocating their capital to participate in the creation of global unicorns and attain a stake in these prized assets of the present and future.

Rise of venture-backed unicorns

A Cambrian explosion of startups is observed across the world as founders are evermore determined to incite positive change through the companies they build. Though there is no global census that counts startups, we are seeing exponential growth in the number of startups worldwide via the Founder Institute. Models looking to estimate the number of startups also lay credence to this, predicting exponential growth in the number of tech company formations.

In conjunction with the uptick in new company formations, the maturing VC ecosystem now provides more founders with the necessary financing, expertise, and resources required to scale their companies. Investments in growth stage venture capital also drive a large share of the ecosystem’s investment funds. With over 80% of capital going to deals valued at over $50m, capital allocators are betting big on venture-backed growth companies. Consequently, it is no surprise that more unicorns were minted in the US than any other previous year as shown below.

In conclusion…

2022 is the year of venture capital. All of the factors discussed above have culminated in the maturation of VC ecosystems in countries such as the US, leading to a prosperous asset class that continually produces highly valued, cash-generating companies. VC Lab is powering a renaissance of new fund managers across the globe by making the necessary information, expertise, and resources more widely available. The increasing rate of venture-backed unicorns worldwide is fuelling and nurturing new ecosystems, creating a cycle of innovation and growth.

VC Lab runs accelerator, the four-month accelerator for venture capital firms and venture builders.

Cohort 6 starts in February and will help participants from around the world close on capital and start investing by June of 2022.

Learn more and apply here