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15 Steps to Fundraising for Your New Venture Capital or Private Equity Fund

Launching is easy; fundraising is harder. I’ve been fortunate to be a Partner at two different VC firms over the past 9 years, and we’ve grown AUM 10X both times. If you take the fifteen steps below, you’ll have the core of a high-performing fundraising and investor relations function. 

  1. Build the firm as much as possible before you solicit limited partners. 

The more baked you are, the more investable you are. The best possible move is to invest in and warehouse some special purpose vehicles that fit your strategy. However, that may distract you from the larger goal of raising a fund, not just a Special Purpose Vehicle.

The next best move is to build your core team, e.g., recruit an Advisory Board, Venture Partners, and EIRs. For ideas, see How Executives Can Work from Home with Private Equity and Venture Capital Funds.

Lastly, gather feedback. Yohei Nakajima, Founder of Untapped.vc, said, “Before pitching LPs and building my firm, I talked with over 50 people I knew to get feedback.” 

  1. Set up the basic marketing toolkit: deck, website, accurate online databases, and social media accounts. 

It’s virtually mandatory to develop a detailed, data-backed deck, and ideally a video pitch. Your materials should ideally meet the expectations of the Institutional Limited Partners Association, even if you’re not targeting institutions. Keep these documents constantly up to date, so all team members are aligned on key numbers, e.g., total dollars raised so far. You’ll look unprofessional if you’re not coordinated. For more on this, see An Investor’s Personal Social Media Tech Stack.

Fundamentally, almost no one invests based on a deck; they want to talk with the people. However, a high credibility deck opens the door to a meeting, where you then have the chance to sell yourself. 

Note that limited partners view formatting as a proxy for professionalism. It’s worth investing a little money in a graphic designer who can design a consistent website, business card, logo, and presentation templates. 

Richard Dukas, CEO, Dukas Linden Public Relations, said, “If you don’t have a website and have no material online presence, you likely won’t get past the first hurdle with potential investors.”

I will highlight that when you’re fundraising, you’re selling a luxury good. The less widely marketed your fund is, the more valuable it is perceived to be. For example, one LP told me she prefers customized emails from fund principals, as opposed to a bulk-mailed quarterly update. An extreme example of this are the venture capitalists who don’t even bother with a website, e.g., Benchmark and Thrive Capital. They are the equivalent of a nightclub with an unmarked door.

  1. Make your online profile data-driven and internally consistent.

All team members should have internally consistent and professional profiles on Linkedin at a minimum, and typically also on Twitter, Facebook, and/or other platforms you use. In particular, highlight the metrics by which you measured your past activities: size of exit, number of people you managed, $ budget you were responsible for, etc. See How to Sell Your Professional Background.

I recommend you make sure your profile is accurately filled out in Trusted Insight, AngelList, CB Insights, Crunchbase, Pitchbook, Palico, Preqin, and Refinitiv Eikon. These are the major tools that institutions and press use to look at the industry. 

  1. Set up a Data Room, with a filled-out Due Diligence Questionnaire (“DDQ”).

Among the most important information to include: details on return history, legal documents, fund organization chart, portfolio construction model, portfolio company 1-pagers, key personnel resumes, and case studies of past investments. We are using Digify to manage this. See OpenLP’s How to build a better data room.

  1. Prepare Limited Partner FAQs. 

You will inevitably get a wide range of one-off questions from LPs. Make sure to compile all your answers in a single document, so that you can recycle those answers. 

  1. Conduct an honest self-evaluation: can you realistically raise money from institutional investors, or should you focus on high net worths/family offices?

Institutional investors in funds are typically conservative. The great majority of first-time funds that raise capital from institutions have: a) an industry-standard strategy similar to what the founders pursued before; b) a personally attributable track record; c) investment work experience at a top-quartile, well-regarded fund; d) at least two experienced founders, preferably who worked together, and e) target AUM of >$50m. If you’re fortunate to pass these tests, you might look like Homebrew, which raised $35m in 100 days from “[four] institutional LPs, several smaller LPs and a few individuals” for their fund I. But if you’re missing any of these attributes, you might get lucky and raise money from institutions, but more likely you’ll have to focus your energy on high net worths and family offices. This will likely take you longer and you’ll have a lower close rate than firms who meet the criteria I list. 

Julia Rhee, Advisor to Typhon Capital Management, observes, “You need to reverse-engineer institutions’ checkboxes. My recommendation is to take apart an investment report from a mid-sized foundation or a due diligence questionnaire built by an investment consulting firm, such as Cambridge Associates, Mercer or Wilshire. Also note, many institutional investors don’t really allocate to VC asset classes directly due to the size of their portfolios. Either they hire a fund or funds or discretionary advisory firms to create sub-vehicles to explore prospective co-investment opportunities, or don’t have mandates at all.” See Should You Raise A Fund? An LP’s View On Challenges And Alternatives.

  1. If budget permits, recruit resources to focus on fundraising. 

Depending on your budget, your resources focused on fundraising could include a part-time human or AI scheduling resource; Advisory Board members who are well-connected in LP circles; a full-time head of IR; and/or a Partner whose primary job is fundraising.

Victor Park, CEO, CapitalIntroductions.com, observes, “The best way to set up the IR function is to hire a former IR person from a similar fund, in the hopes that the IR person can fund their own partnership stake and/or their base salary themselves by bringing an anchor investor to your shop. Or, ask a prospective investor if they know of anyone that they’ve worked with that might be interested in the role at your Fund. Having someone an investor recommends in the IR role at your fund could be exactly the difference in getting that prospective investor over the finish line.” 

  1. Treat this as a formal sales process, and aggressively maintain your CRM. 

Ensure all team members track all interactions with potential investors in your CRM. Set up a pipeline with stages such as “Solicited”, “Accessed Data Room”, etc. to keep track of where everyone is in the sales process. Our pipeline stages are: 

Solicited > Responded > Call/Meeting Set >  Material Sent >
Accessed Data Room > Sub Docs Review > Closing . 

When a promising lead has had no contact in 2 weeks, follow up with a note. The more accurately you keep track of everything, the better your statistics at the end will be when you review and improve your process. See How Emerging Venture Capital Fund Managers Should Think About Their LP Fundraising Strategies.

  1. Build your own network, rather than counting on a placement agent.

You’ll need to go through all of your existing networks: schools, former employers, social clubs. Most people will reject you; but you’ll just have to keep asking for referrals. 

Marco Cesare Solinas, Analyst, Blue Future Partners, points out that, “It’s very important to leverage the network of service providers (e.g. lawyers, bankers, accountants.)” But Vince Timoney, Managing Director, First Republic Bank, noted, “[N]one of these providers are placement agents, so do not count on them to deliver LP commitments. That said, if there are names in their network that are on your target list or can expand your network take them up on their offer. Perhaps these are LPs that are not a fit for fund one but could be a fit for fund two or three so its best to get to know them now. Similarly to asking your service providers, ask LPs if they have a name or two that you should be talking to. Emerging managers need to shake a lot of hands to get to a first close; be selfish in asking for help.”

I recommend you first devote resources to building your own network, not hiring someone else’s network, which inevitably will have a much lower conversion rate than your own network. Even a great placement agent will typically have challenges placing you, if you do not pass the traditional institutional tests above.When you hire a placement agent, especially one who does not have a reputation for being selective, you are positioning yourself as a good which the hoi polloi can buy. See The Use of Placement Agents for Emerging VC

Nathan Beckord, CEO, Foundersuite, recommends, “Tap your advisors and mentors (and any existing committed LPs) to run fundraising as a team sport… for example, invite your advisors into your CRM pipeline and explicitly ask them to add 10-15 potential LP leads to your funnel. Also, ask them to look at your target list and identify anyone they can make an intro to.”

  1. Use online networks to more efficiently identify the right potential LPs.

The LP universe is opaque; there’s no easy way to tell which LPs are excited about firms like you. Even if you learn that a particular LP just invested in a very similar fund to yours, there’s a high risk they’ll say, “We can’t invest; you look too much like our last investment.” Online services like Palico, Preqin, and Trusted Insight will give you visibility into the major allocators. Certain allocators (Different Funds’ Venture Navigator) allow you to register into their searchable database.

As a cheat code, look at the speaker and attendee lists for all of the conferences in your space. For example, if you come from a traditionally underrepresented background, look at all the conferences/organizations at the intersection of diversity and VC (which I list here). Any potential allocator who participates in such a conference has publicly indicated that they want to diversify their inbox.

I suggest attend or organize events which potential LPs attend. You can spend a lot of energy trying to organize 50 one-on-one meetings with potential LPs, or you can be a part of an event with 50 potential LPs in one room.

I recommend side-channel at virtual conferences. Look up the profiles of each of the people attending a conference, and send them a highly customized message introducing yourself. This is one of the primary advantages of virtual events vs. traditional face-to-face, where people do not conveniently hand out their Linkedin profile along with their business cards.

A useful newsletter to track the players in the institutional investor universe is Charles Skorina & Company.

  1. Build an event database and solicit organizers to get speaking slots.

Keep an ongoing list of high-caliber investor-focused events in your geographies and sectors of interest. Reach out periodically to get speaking slots. You may have to pay to sponsor, but often you can get a speaking slot gratis if you’re a great fit for the event, or if you bring other value to the table. E.g., if you can source high-quality speakers, or introduce sponsors, event organizers will recognize the value you’re creating.

  1. Control the meeting format.

Make sure to always re-confirm meetings and re-send your deck at least 24 hours before a meeting. E.g., email, “I look forward to our call at 9am-10am EST tomorrow. For your reference, here is our current deck (link).”  That way everyone is literally on the same page, which is critical for a virtual meeting.

Start the meeting by asking the LP if she prefers to go through the deck page by page, or jump in with initial questions. Ideally, no one should speak more than 2 minutes before giving the speaking stick to a colleague. Stop regularly to ask questions and make sure they understand. It is generally a good idea, but especially on a phone call when you cannot see the LP’s body language and monitor they’re paying attention.

  1. Diligence limited partners.

Attorney and former investigative journalist Gordon Platt observed, “Like a marriage, both sides want to know what they’re getting into. Fund managers should know as much as possible about prospective LPs. Not only will this enable managers to customize their pitches, but it will allow them to know what to expect. Do LPs have the resources that they claim? Are they litigious? Do they have documented criminal or other legal or regulatory problems? For their part fund managers should err on the side of disclosure. Omissions and distorted disclosures will set you up for future legal issues and are likely to come up during the due diligence process in any event.” Various firms help address Anti Money-Laundering obligations, e.g., ComplyAdvantage.

  1. Onboard LPs and build a trusted relationship. 

Make sure you have your legal counsel review every subscription packet before accepting the investor to ensure all is filled out correctly. The onboarding process typically requires a lot of tedious paperwork and back and forth with lawyers. A number of firms (e.g., Anduin, Assure, FundFormer, NovaHQ, Passthrough) have built highly automated processes which reduce the number of touch-points.

  1. Once you have a first close, quarterly LP reporting is mandatory.

Write up detailed quarterly reports to be sent out within 45 days of the end of each quarter. Make sure these are compliant with your Limited Partnership Agreement (e.g. if this states that you must give a list of all current holdings, do so in every report). One of the key metrics for Fund II investors is the percentage of Fund I investors who follow on.

Further reading: 

Disclosure: Blue Future Partners is a member of the Advisory Board of ff Venture Capital, where I was formerly a Partner. I’m an investor in Foundersuite via ff Venture Capital.

Thanks to Annie Schmidt, Investor Relations, HOF Capital, for helping research this essay, and to Prabhat Gusain and Winter Mead of Oper8r for feedback.

This essay was previously published in Techcrunch.

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