How would a person start a venture capital fund?

Having recently raised one, I’ve learned a lot: Jason Lemkin just raised a $70 million fund; here’s how he did it

First, you need a track record. If you haven’t already made some good investments — it’s going to be tough to start your own fund. Go work at a fund first and make some good investments there.

Assuming you have at least a partial track record, then, there are two-and-a-half basic paths:

The first is to start small. Start as an angel investor, make some good investments, and then, after proving yourself as an angel, raise a small fund. Perhaps $5m, $10m, $20m to start — mainly from Very Rich Individuals.

The second is to work your way up at a fund. Go join an established fund, and build a track record. At least a partial one. At least invest in 2+ companies that can be Unicorns. You won’t have truly proven yourself. But it may be enough to raise a small fund.

The third is to partner with someone already doing one of the prior two tracks. Often, a “financial” VC will seek out an operational partner. Or a successful, but perhaps less “branded” VC, will seek out someone with a brand, but perhaps a less established, or less traditional, track record as complementary.

What doesn’t work that well is to go straight from Successful Founder to First Time VC with a Relatively Big Fund. At least not for most LPs. Most LPs are looking to see that you’ve put institutional capital to work — not just founded an amazing company.

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Published on December 20, 2016

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