With a timeline of 5 months to set up the firm and another 6-12 months to finalize the fund, what% of funds need to be committed before we can deploy the funds?
A fund cannot deploy capital to any portfolio company until it has done a first closing. The minimum in PACTS are as follows:
- $10m+ fund: 10% or $1m+ in PACTs are the minimum necessary to complete a first closing.
- $5m fund: 20% or $1m+ in PACTs are the minimum necessary to complete a first closing.
Once a fund completes the 1st closing, it will do a capital call from its LPs for ~25% of committed capital. The fund will use the capital received from the capital call to pay for organizational expenses and to invest in its first portfolio companies.
During this time, the fund manager must continue to fundraise until reaching the target fund size - it is critical to keep the pedal to the metal on fundraising.