Complete Guide to Starting Your Venture Capital Fund
Introduction
What if launching a VC fund cost $100K instead of $500K+ and required just $10K minimum LP commitments? This isn’t hypothetical; it’s the new reality reshaping venture capital.
VC fund formation establishes the legal investment vehicle that allows venture capitalists to pool capital from limited partners and deploy it into startups. This process involves critical decisions around fund structure, legal domicile, timing, and regulatory compliance that impact every aspect of operations.
Traditional fund formation costs of $500K+ create barriers for emerging managers. Innovative alternatives like Start Funds now offer $100K minimum closes and $10K LP commitments, fundamentally changing access. Through programs like VC Lab, which has launched 600+ VC firms with 65% operating outside the US and 29% featuring female GPs, this democratization continues accelerating.…
Category: Venture Capital Operations
A venture event strategy is a systematic approach for general partners to engage and convert limited partners through targeted gatherings. Events remain the most effective method for identifying and closing prospective limited partners, with their importance growing in recent years. This article outlines a comprehensive event strategy for venture capital firms, leveraging the Decile Hub platform (https://DecileHub.com) to host and manage events.
A great event strategy can help you attract hundreds of limited partner leads and raise tens of millions of dollars. Let’s explore how to create an impactful event strategy that drives capital raising efforts.
Getting Started
Launching your first venture capital event doesn’t have to be complicated. We will explain all of the strategies and tactics next, but the best thing to do is to start by running an event.…
A PACT (“Pledge Agreement for Capital Transaction”) is a non-binding letter of intent signed by a qualified investor to indicate their desire to invest a specific amount of money into a startup or into a venture capital fund.
The PACT is a Commitment Letter, which is commonly used in financial transactions.
The PACT Letter was developed in 2018 by the Founder Institute to solve the problem of internal fund offerings having excess investor interest. Before the creation of the PACT, it was difficult to identify which potential investors were serious about investing, commonly referred to as Hard Circled, and which other investors were casually exploring the investment, referred to as Soft Circled. Collecting signed PACT Letters provides a clear way to calculate the Hard Circled total, which reduces the uncertainty and guesswork of closing a multi-party investment round.…
Here is everything you need to know about picking a domicile for your VC fund. At VC Lab we’ve helped many ambitious fund managers such as yourself pick and launch their VC funds and we’ve simplified the process so you can focus on what matters most.
Domiciling is a complex and opaque process because of the many factors one has to consider. Each fund manager has a unique set of needs to consider with regards to their funds. You must take into account: your fund size, geography, thesis, LPs, and much more.
Read more in our ‘Best VC Domiciles‘ article.
The 7 key factors:
Fund Vehicles
Taxation / Cost
Speed to market
LP / Investor preferences
Sophistication of the national regulator
Legal system and certainty
Ease of doing business
Sign up to our Decile Launch, to automate your fund structuring.…
In countries around the world, there are rules and regulations that govern pitching limited partners (LPs), the investors in venture capital funds. Publicly pitching for investment, called General Solicitation, is commonly regulated, and it is important for new managers to understand the local rules and regulations.
This is a practical overview of general solicitation for venture capital fund managers. This overview is not legal advice, and fund managers are encouraged to read the Legal Disclaimer.
Before you launch a web site, post on social, or send out a presentation, make sure you understand the general solicitation laws.
Quick Guidelines to Avoid General Solicitation
What is General Solicitation?
“General solicitation” refers to raising capital by making public statements and soliciting interest from strangers.…
Introduction
Venture capital’s network dynamics play a pivotal role in fund success. The VC Lab Webinar, “Leveraging Second and Third-Degree Connections to Find LPs,” provides a strategic approach to network expansion in the VC industry, focusing on maximizing connections beyond immediate circles to access potential Limited Partners (LPs).
Understanding the VC Networking Landscape:
First-Degree Connections: Direct, immediate contacts often exhausted by venture capitalists.
Expanding to Second-Degree Connections: Friends of friends, offering a broader scope of potential LPs.
Tapping into Third-Degree Connections: Connections of connections’ contacts, a largely untapped resource with significant potential.
The key to successful venture capital networking lies not just in the breadth of your connections but in the depth and quality of these relationships.
Decile Start’s Role in Networking:
Decile Group’s innovative tool, Decile Start, plays a pivotal role in network expansion within the VC ecosystem.…
Venture Capital activity, which includes investments in high-growth startups, is shaped and defined through a fundamental document known as the Limited Partnership Agreement (LPA). The LPA dictates the interactions, responsibilities, and rights of General Partners (GPs) and Limited Partners (LPs), providing a blueprint for venture capital operations.
This article is dedicated to unraveling the dense fabric of key economic terms that are enshrined in LPAs. It separates these terms into logical categories, including fund details, roles, financials, timeframes, and restrictions, offering an accessible guide for those new to the venture capital landscape.
Check out the Cornerstone LPA to learn more about actual Limited Partner Agreements.
Fund Details
Fund details guide the strategic and operational direction of a venture capital fund. This information outlines the main focus and target areas of the fund, such as sectors, investment stages, and territories.…
Management fees are a critical aspect of venture capital (VC) firms, ensuring a regular income for the firm, separate from the investment’s performance. These fees are typically a percentage of the fund’s total capital and provide a steady revenue stream. In this article, we will explore how new VC managers earn through these management fees, using a hypothetical scenario where a new manager oversees three successive funds: Fund I of $5 million, Fund II of $20 million, and Fund III of $50 million.
Venture capital management traditionally begins with smaller funds, which are simpler to raise and deploy. For many new venture capital managers, starting with a smaller fund serves as a proving ground, enabling them to demonstrate their investment acumen and operational capabilities without the pressure of a substantial fund.…
Quarterly reporting serves an important role in venture funds. It offers fund managers to communicate fund performance, updates, and financial information to investors in a structured and timely manner. In other words, it offers fund managers an opportunity to bring their stakeholders up to speed. In this article, we discuss the venture capital quarterly reporting process to shed light on its importance, key components, and best practices.
Why is quarterly reporting important for venture capital funds?
Quarterly reporting serves four very important roles in a venture fund’s operations. While some of these reasons are required by law, others are important when it comes to maintaining trust and relationships with investors and other stakeholders:
Transparency and Communication: It offers a transparent channel of communication between fund managers and investors, keeping them informed about the fund’s progress, portfolio companies, and key metrics.…
Over 60% of new venture capital managers are choosing Delaware as the domicile for their firms and funds. As Europe becomes more regulated and expensive, the UK faces Brexit-related isolation, and traditional tax havens like the Caymans grow costly due to new Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations, Delaware shines. Its clear regulatory framework, cost-effectiveness, and stability make it the preferred choice for venture capitalists globally.
Why is Delaware the Top Domicile
Cost-effectiveness:
While some jurisdictions offer various incentives for venture capitalists, Delaware stands out for its cost-effectiveness. The state’s corporate franchise tax structure is favorable for venture funds of all sizes, and the cost of doing setting up and running a fund is three to five times less expensive than most other domiciles.…
In venture capital, a “close” or “closing” happens when a fund has legally secured commitments from Limited Partners (LPs) for a target portion of the intended total fund size. These commitments represent pledges from LPs to contribute specific amounts of capital to the fund. The closing phase marks the initial significant milestone in the fund’s journey towards supporting high-growth startups to their fullest potential.
The journey towards closing a VC fund is complex and layered, often involving multiple stages and a wide array of participants from varied disciplines. The fund typically starts by closing between 10% and 25% of the total fund size. The balance is then raised over two or three subsequent closings across a span of 12 to 18 months.…
Decile Launch provides fund formation and fund admin to top performing venture capital firms. The offering starts with a two-month structured program to establish the venture capital firm and close the fund. Then, the newly launched fund becomes a member of Decile Partners for fund accounting, deal reviews, real-time reporting, and strategic advisory support. The Decile Launch and Decile Partners offerings are all offered at a fixed price with no hidden fees.
Decile Launch simplifies the complex process of venture capital fund management, saving fund managers time and money, while allowing them to concentrate on what they do best – identifying, funding, and supporting high-potential investments.
Decile Launch Offering
Decile Launch and Decile Partners provide an all-inclusive and turnkey support from formation to operations.…
Fund formation attorneys are practitioners in the venture capital (VC) industry who facilitate the creation and operational organization of investment funds. Their work includes drafting and scrutinizing fund agreements, overseeing regulatory compliance, aiding in due diligence procedures, and providing advice on tax matters. While they play a role in forming the legal structure of a fund and addressing potential risks and conflicts, their engagement should be thoughtfully managed due to the high costs associated with their services. Their involvement forms a part of the broader field known as venture legal.
When to Hire the Attorneys
Do not retain fund formation attorneys or back office providers until you have real commitments from limited partners.
One common mistake new venture capital managers often make is rushing to engage fund formation attorneys before their fund Thesis is even proven viable.…
A “For Progress” company is a business directly aligned with one or more United Nations Sustainable Development Goals (SDGs), focusing on creating measurable impacts on global challenges through its mission, products, or services. This model applies to both for-profit and non-profit entities, fostering a universal impact-driven approach to business.
Initially intended for national governments, the United Nations Sustainable Development Goals (SDGs) have expanded to encompass the private sector. To accommodate this shift, an initiative led by the Founder Institute translated the SDGs into metrics called impact Key Performance Indicator (iKPIs) that businesses, startups, and venture capitalists can address. This new approach bridges the gap between the SDGs and the entrepreneurial sector, providing a framework for private entities to align their goals with global sustainability targets and measure their contribution, fostering a culture of accountability, transparency, and improvement.…
In the world of venture capital, ‘Connectors’ are individuals with an extensive network of potential investors or limited partners (LPs). They serve as a bridge between general partners (GPs) at venture capital firms and potential LPs, facilitating introductions that could lead to fruitful partnerships. However, for GPs looking to raise capital, especially those at new and emerging venture capital firms, it is crucial to understand and navigate the delicate terrain of securities laws to avoid triggering general solicitation.
The Role of Connectors
Connectors, individuals who maintain expansive networks encompassing wealthy individuals and potential limited partners, serve as conduits between general partners of venture capital firms and potential investors. With their broad connections, Connectors can provide access to an array of potential limited partners that might otherwise be challenging to reach.…
A capital call is a request made by a venture capital fund to its investors to contribute capital to the fund. This is typically done when the fund needs additional funds to make investments or to cover its ongoing expenses. Capital Calls are commonly paid by the Limited Partners as defined by the Limited Partner Agreement (LPA).
Capital Calls are a crucial aspect of venture capital investing, as it enables the fund to make new investments that generate returns for its investors. However, it can also be a source of risk, as investors must be prepared to provide the capital requested, even if they may not have anticipated the need for additional contributions.
This comprehensive guide provides an in-depth overview of capital call processes, management, strategies, risks, and best practices.…
Venture capital fund closures are a seasonal phenomenon, influenced by factors such as holidays, budget allocation schedules, tax seasons, and the geographic locations of limited partners (LPs). Recognizing and understanding these patterns is crucial for both fund managers and their LPs to optimize their planning. In this article, we’ll delve into the best times to close a VC fund, the importance of planning, and how to prepare for the fund closure process.
Seasonality of Fund Closures
Seasonal patterns significantly venture fund closing timelines. December and January, alongside July and August, are widely regarded as the “funding doldrums” periods. Securing LP funding during these months can be particularly challenging due to holiday celebrations and vacation schedules. Additionally, local and religious holidays may contribute to further funding slowdowns.…
In venture capital fundraising, understanding the distinction between soft circled and hard circled limited partners is crucial. Soft circled partners express interest in investing, while hard circled partners commit to a specific investment amount. This article will outline how to identify soft and hard circled limited partners, guide you through the identification process, discuss the importance of regular communication, and explore the role of geography in closing probabilities to help you maximize your fundraising success.
What is Soft and Hard Circled
Soft Circled Limited Partners:
Soft circled limited partners express interest in investing a specific amount or range, but they typically have additional questions or require further steps to finalize the investment. The probability of closing a deal with a soft circled commitment ranges from 10% to 25%.…
A venture studio, also known as a venture builder, startup studio or startup factory, is an organization that systematically generates, develops, and scales multiple startup companies. Unlike traditional venture capital or incubator models, venture studios are actively involved in the operational aspects of the business. They provide not only capital but also shared resources, expertise, and a network to help startups grow and succeed.
How are venture studios structured?
Venture studios create distinct legal entities for the parent company and the portfolio companies. It is common for venture studios to have an attached venture fund to finance portfolio companies after launch. When there is a fund, the recommended structure is to have a dedicated management company above the venture studio entity and above the GP and LP entities of the fund (see diagram).…
Fund Expenses refer to the costs associated with operating a venture capital fund. They traditionally include expenses to complete investments by the fund, such as legal costs, and other ongoing operational expenses of the fund, such as an annual audit. Fund Expenses are commonly paid by the Limited Partners as defined by the Limited Partners Agreement (LPA).
Venture capitalists typically work to reduce Fund Expenses. Managers have discretion to pay for expenses out of pocket, and certain expenses can be unclear if they are Fund Expenses, such as paying for a general CRM system or attending a conference.
This article outlines some best practices for handling Fund Expenses by emerging managers.
What are Fund Expenses?
“Fund Expenses” is a commonly defined term in a Limited Partner Agreement to refer to any expenses incurred to set up and operate a fund, including Management Fees, taxes and accounting.…