What are some good tips for starting a new venture fund?

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JASON LEMKIN

My Top Tips:

  • Be patient. It probably takes the average new venture fund almost 2 years to get off the ground. Seriously.
  • Try to find a partner with a venture track record. If you can find a partner that has an established, 2x-3x+ return track record, even just part of a track record — that will help fundraising. A lot. LPs strongly prefer to invest with at least one established manager on the team.
  • Fit within the box. If you are raising a new fund, it’s mostly likely a small, early-stage fund. There are certain “boxes”. $20m for truly early seed funds, $40m for “lead investor” seed firms, etc. Ask for too much, and you will turn off most LPs. Venture is a product. Make sure the product is in the serving size and packaging the buyer wants.
  • Get other VCs to refer you to their LPs — if they want to and offer. Very warm referrals work magic. I.e., “Linda is the best, hottest emerging manager I know.” Anything less in an intro. accomplishes almost nothing.
  • Get a great “anchor”. Getting one prestigious, well connected LP to commit fund will bring the fund together, at least in part. LPs that like to anchor do it for good reasons — they want to be first to get their target ownership, to take an active role in the fund, etc. LPs that don’t like to anchor, won’t want to anchor your fund either.
  • Remember, you may have to put a lot of money in yourself. Typical “capital commitments” for brand new funds can be relatively high, e.g. 3–5%. If you are trying to raise say a $40m fund, you may need to put in $1m+ yourself. Do you have it? And are you OK with that?
  • Don’t try to get capital from LPs (capital sources) that don’t do new funds and emerging managers. Most LPs simply won’t do your fund, period. It’s too new and too small. Some LPs do take these “new, emerging manager” risks. But if an LP has never done this before — highly unlikely you will be the first. Unless you have just an epic brand and angel portfolio.

It’s hard. Assume it will be harder, and take longer, than you think.

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Published on May 19, 2016
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