Fundraising

The brackets in the base PACT agreement are placeholders for jurisdiction-specific legal references.  The language in the bracket is suggested language. For example, if you're in the US or launching a fund in Delaware, you can remove the...

The brackets in the base PACT agreement are placeholders for jurisdiction-specific legal references.  The language in the bracket is suggested language. For example, if you're in the US or launching a fund in Delaware, you can remove the brackets and the PACT will then work in Delaware. If, on the other hand, you plan to launch the fund in a different jurisdiction, you can replace the content in the brackets to match that jurisdiction.

You are not going to be obligated to return the money to investors and it will not be feasible for you to do so even in the unlikely scenario that an inexperienced LP makes an ask like this. This is because the LP's money gets invested i...

You are not going to be obligated to return the money to investors and it will not be feasible for you to do so even in the unlikely scenario that an inexperienced LP makes an ask like this. This is because the LP's money gets invested into startups as soon as possible. In other words - think of the fund's bank account as a router of LP money into startups. 

You need to have different data rooms for different LP archetypes. If the LP archetype that's making this request is HNW this folder should maybe contain a few deal memos on your best angel investments. On the other hand, if the LP is an...

You need to have different data rooms for different LP archetypes. If the LP archetype that's making this request is HNW this folder should maybe contain a few deal memos on your best angel investments. On the other hand, if the LP is an Family Office or Institutional, you're going to want to provide an excel, deal memos and any other type of report you may have.

Yes! If you go to the settings for a data room folder, you will see an input to show a "Pact link banner", which will display a banner to do exactly that. [pact.png]

Yes! If you go to the settings for a data room folder, you will see an input to show a "Pact link banner", which will display a banner to do exactly that. [pact.png]

I recommend that you don't reverse engineer like this. This is a trap that many emerging managers fall into. The managers that have done this who we have worked with regretted it when they came in severely under-subscribed because they s...

I recommend that you don't reverse engineer like this. This is a trap that many emerging managers fall into. The managers that have done this who we have worked with regretted it when they came in severely under-subscribed because they set a high target since LPs that gave them this objection. This objection is a No, not that if you had a bigger fund they would invest. We recommend that you set the target to what you can realistically close relatively easily in the next 18 months. First, asses the LPs in Fund 1. Typically ~70% often re-up in Fund 2s. Then, review the relationships you have built with other LPs over the years that you think have a realistic shot at closing. Let's say that after this exercise, you feel very comfortable reaching a $15m target. Consider then setting the target in the $15 - $20m range max. Then, if/when LPs of the archetype that you describe give you that objection, say something like this in your own words: "Our target is $[x], and we are confident that we will likely over subscribe. What is your process from here on out?"

You should avoid communicating a final closing date until you have enough signed LOIs from LPs to proceed, or your fundraising period is expiring as per the terms of your LPA.

You should avoid communicating a final closing date until you have enough signed LOIs from LPs to proceed, or your fundraising period is expiring as per the terms of your LPA.

TL'DR - Never. Anchor investors are no longer common for emerging managers, especially, in Fund 1s, and they are becoming obsolete in general. Anchors are a way of the past. In modern fundraising, emerging managers rarely have an anchor,...

TL'DR - Never. Anchor investors are no longer common for emerging managers, especially, in Fund 1s, and they are becoming obsolete in general. Anchors are a way of the past. In modern fundraising, emerging managers rarely have an anchor, especially in Fund 1.

The best CRM for LP outreach and management is Decile Hub. The Decile Hub platform is purpose built for VC firms. 

The best CRM for LP outreach and management is Decile Hub. The Decile Hub platform is purpose built for VC firms. 

Anything specific to the details of the call (investments, fund expenses, management fees) that details why you are making the capital call.

Anything specific to the details of the call (investments, fund expenses, management fees) that details why you are making the capital call.

This is not a good approach and will cause 409a valuation issues for the founder. It's also incredibly difficult for them to explain this to future investors. Every investor in this round should come in on the same terms. Then, after the...

This is not a good approach and will cause 409a valuation issues for the founder. It's also incredibly difficult for them to explain this to future investors. Every investor in this round should come in on the same terms. Then, after they close, they can raise the cap for the next SAFE as they can justify this with more traction.

Typically, 50% of meetings convert to PACTS for a fund size between $100K and $1MM. You're not doing well if it is 30% or less.

Typically, 50% of meetings convert to PACTS for a fund size between $100K and $1MM. You're not doing well if it is 30% or less.

To achieve quicker PACT signings, it's crucial to implement strategic targeting and streamline the interaction process with potential Limited Partners (LPs). Start by identifying the right LPs based on their investment size: small (Angel...

To achieve quicker PACT signings, it's crucial to implement strategic targeting and streamline the interaction process with potential Limited Partners (LPs). Start by identifying the right LPs based on their investment size: small (Angels and High Net worth Individuals, $100k - $1MM), medium (High Net worth Individuals, Small Family Offices, Corporates, $1MM-5MM), and large (Sovereign Wealth Funds, Endowments, Large Corporations, Medium to Large Family Offices, $5+MM). The time it takes for these LPs to sign can vary, with smaller LPs typically taking 1-3 months, while medium and large ones can take 3-12 months or even longer due to their extensive due diligence processes. To facilitate a faster signing process, consider the following steps: 1. Streamline Interactions: Minimize unnecessary friction in the PACT signing process, as PACTs are non-binding letters of intent and should be treated as flexible and momentum-driven. 2. Leverage Intimate Events: Invite LPs who have already signed PACTs to intimate events and encourage them to bring a potential LP friend. This can lead to better conversion rates through personal interactions. 3. Optimize Communication Strategy: Develop a consistent and informative communication style, avoid sounding desperate. Your tone should be inviting and confident, focusing on providing information rather than overt selling. 4. Structured Meeting Process: Arrange LP meetings strategically. Aim to get a PACT signed by the second or at the latest, the third meeting. Limit the number of meetings and always move towards signing a PACT. Use statements like, "I would love to know your interest level in investing, we're looking for a $500k-$1M position, before I send you XYZ I would love for you to sign a PACT." 5. Control Access to Materials: Implement a policy of "No PACT, No Access" for most small and medium LPs. This helps to ensure that only serious prospects have access to detailed materials and data rooms. By focusing on these strategies, not only do you maintain a clear and efficient pathway towards closing, but you also respect the time and commitment of potential investors, making it more likely for them to engage positively with your fund.

Venture Partner claims and reality often do not match up to reality. As a result, most Venture Partners are terminated by Managing Partners. So, use the Venture Share agreement and place a six month cliff on the Carried Interest venting....

Venture Partner claims and reality often do not match up to reality. As a result, most Venture Partners are terminated by Managing Partners. So, use the Venture Share agreement and place a six month cliff on the Carried Interest venting. If they do not reach 15% of the fund size after 6 months, then terminate them.

You might find this article generally helpful regarding General Solicitation: https://govclab.com/2023/11/22/general-solicitation/ While we can't speak specifically to the UAE, the answer may be highly dependent on the nature of a relat...

You might find this article generally helpful regarding General Solicitation: https://govclab.com/2023/11/22/general-solicitation/ While we can't speak specifically to the UAE, the answer may be highly dependent on the nature of a relationship with a US person working/residing in the UAE, and how any discussions are being conducted. We recommend consulting your fund attorney for advice on your specific situation, in addition to potentially a fund attorney with expertise in the region. 

There is nothing contractually in the LPA that prohibits a GP to call capital as needed and a GP shouldn't make promises or capital call schedules since they have no definite way of knowing how their deal flow and investment needs will b...

There is nothing contractually in the LPA that prohibits a GP to call capital as needed and a GP shouldn't make promises or capital call schedules since they have no definite way of knowing how their deal flow and investment needs will be over the entire investment period. Furthermore, a GP shouldn't call all of the capital over the investment period as money will be needed after the investment period for on going management fees and fund expenses. In summary, an LP needs to have trust in the GP as a steward of their money and that they have the best interests of the fund.

The best connectors are already 'supporters' of you or your fund or both. As a result, they naturally want to help you on your missions without anticipating something in return. To better help you triangulate on the right archetype, try ...

The best connectors are already 'supporters' of you or your fund or both. As a result, they naturally want to help you on your missions without anticipating something in return. To better help you triangulate on the right archetype, try our connector GPT: https://vcl.to/gpt-connector (Note, you will need GPT-4)  Here are some additional resources: • Read: https://govclab.com/2023/05/13/leveraging-Connectors/   • Read: https://govclab.com/2023/08/16/sourcing-and-closing-limited-partners/ • Watch this Webinar: https://vimeo.com/857620742/165b519c1e?share=copy   

If by funding you're referring to SBIC investing in your fund, then the answer is no. However, it can be an option for your portfolio companies. 

If by funding you're referring to SBIC investing in your fund, then the answer is no. However, it can be an option for your portfolio companies. 

0. Avoid working with broker dealers. They struggle to place LPs in emerging manager funds due to the risk and red tape. In addition, their fees are too expensive for emerging managers with small funds and because they are usually due on...

0. Avoid working with broker dealers. They struggle to place LPs in emerging manager funds due to the risk and red tape. In addition, their fees are too expensive for emerging managers with small funds and because they are usually due on placement, they rarely align with a fund's capital call schedule. 

Cold emails don't work and should be avoided. What you should do is to work to develop relationships with connectors that can introduce you to LPs first. You can, also attend events and host events as well to build your top of funnel.

Cold emails don't work and should be avoided. What you should do is to work to develop relationships with connectors that can introduce you to LPs first. You can, also attend events and host events as well to build your top of funnel.

As a result of global general solicitation rules and best practices, a manager should only share materials with a limited partner that they know and are confident meet the local accreditation or wealth standards. Practically speaking, th...

As a result of global general solicitation rules and best practices, a manager should only share materials with a limited partner that they know and are confident meet the local accreditation or wealth standards. Practically speaking, the manager should have an introductory meeting with every LP first to get to know them. After getting to know a limited partner, then the manager can decide to meet with limited partner again to pitch them or to send the limited partner materials. Managers should only send materials to interested limited partners and avoid sending materials just because an uninterested or curious limited partner requests materials.

There are many ways to ask a limited partner for a PACT, ranging from more passive ways to more forward ways. A manager should decide which way to ask which limited partner based where in the process the limited partner is and how the re...

There are many ways to ask a limited partner for a PACT, ranging from more passive ways to more forward ways. A manager should decide which way to ask which limited partner based where in the process the limited partner is and how the relationship with the limited partner is going. Here are three examples of how to ask: Passive Ask: "We are planning to close at the end of Q1, please let me know your interest level by filling out form below." Direct Ask: "I would love to have you participate in our first close. Are you interested in a $250K position? Please let me know below." Forward Ask: "You mentioned interest in a $250K position, can you reserve your position at the link below by Wednesday?"

You should share how much you have closed, if an LP asks. However, unless you have closed at least 50% of the fund, it's sub-optimal to lead with this type of information because it's unclear if you will reach your target. This is also w...

You should share how much you have closed, if an LP asks. However, unless you have closed at least 50% of the fund, it's sub-optimal to lead with this type of information because it's unclear if you will reach your target. This is also why it's absolutely critical to set your fund size as the minimum target rather then your maximum. The timing also matters. For example, if you recently did a 1st close and you have 20% subscribed, that's a great signal to LPs. On the other hand it doesn't look great if you set your fund size at $20m and you only closed on $5m with 6 months left in your fundraising period. If you have a lot of fundraising momentum you can create a scarcity effect that 'the train is leaving the station, get on now'. You can use this momentum to ask current LPs for additional introductions etc.. and if they are excited about the opportunity, they will comply. 

The target fund size should be thought of as the minimal viable fund size to operate. Most new and emerging mangers set fund size targets that are too large, resulting in them under-subscribing and ensuring an extremely difficult time ra...

The target fund size should be thought of as the minimal viable fund size to operate. Most new and emerging mangers set fund size targets that are too large, resulting in them under-subscribing and ensuring an extremely difficult time raising future funds. For most new managers, the fund size should be $5 MM to $10 MM in the developed world and $2.5 to $5 MM in the developing world. If a new manager has extensive angel experience with strong returns or venture experience dealing with limited partners, then the fund size can be up to twice that size. For emerging managers on Fund III or Fund III, the next fund size can be 1x, 2x or 3x the previous fund size. If the returns from previous fund or funds are exceptional, an emerging manager can consider a fund size as large as 5x the previous fund size. The goal of any manager is to have a target fund size that they can easily hit or exceed. It is very difficult to recover from raising less than your target fund size. Conversely, oversubscribing is looked at favorably by all parties. If a manager cannot quickly raise 15% to 20% of the fund size from friends and confidants, then the fund size is too large.

GP - LP events are very effective and are foundational to a succesful fundraising strategy. In order to maximize the effectiveness of your LP events: 1.  Invite LPs that have signed PACTs or have closed 2. Ask the LPs that have signed P...

GP - LP events are very effective and are foundational to a succesful fundraising strategy. In order to maximize the effectiveness of your LP events: 1.  Invite LPs that have signed PACTs or have closed 2. Ask the LPs that have signed PACTs to invite a friend Typically, intimate events convert significantly better. But the events must be curated correctly to ensure that prospective LPs receive an exclusive experience.

Preferred stock rounds are typically raised via pre-money valuations. 

Preferred stock rounds are typically raised via pre-money valuations. 

The absolute minimum of a 1st closing needs to be $1m+ or 10% of the fund, whichever is larger. We strongly advise against closing on less then $1m because it will be very difficult to get the fund operational upon the first capital call...

The absolute minimum of a 1st closing needs to be $1m+ or 10% of the fund, whichever is larger. We strongly advise against closing on less then $1m because it will be very difficult to get the fund operational upon the first capital call which should be 25% or less.  If the manager were to do 25% capital call on $500k, this does not give the manager enough money to invest in enough companies, draw down management fees and pay organizational expenses.

We have received feedback from the community that some managers increased conversion when they used the word form instead of PACT in their verbal conversations and in emails.

We have received feedback from the community that some managers increased conversion when they used the word form instead of PACT in their verbal conversations and in emails.

In most cases, your suggested approach is the right one. There are some exceptions such as when the founders did something bad or unethical, but in general, your approach is sound. With insider rounds, the CEO needs to drive this proce...

In most cases, your suggested approach is the right one. There are some exceptions such as when the founders did something bad or unethical, but in general, your approach is sound. With insider rounds, the CEO needs to drive this process. They should have an idea of the construction of the round and terms. Then, they should speak 1:1 with trusted investors like yourself for feedback on the round. Then, they can go to all other insiders with the proposal. Consider proactively reaching out to the CEO to help them navigate this.

Avoid promising targeted returns to LPs. You may want to model out some returns based on your strategy showing High, Medium, Low scenarios at some point, but the answer to the LPs should be: "I will share our deck which will describe sev...

Avoid promising targeted returns to LPs. You may want to model out some returns based on your strategy showing High, Medium, Low scenarios at some point, but the answer to the LPs should be: "I will share our deck which will describe several returns scenarios for our fund. Since VC fund returns have asymmetric upside and follow a Pareto distribution, one successful investment can be the difference between a 10x+ on the fund and a 2x"

The Venture Studios in the VC Lab program have a VC fund attached. Please review this article: https://govclab.com/2023/04/25/how-to-build-a-venture-studio/ The capital calls for the VC fund that's attached to the studio will work the s...

The Venture Studios in the VC Lab program have a VC fund attached. Please review this article: https://govclab.com/2023/04/25/how-to-build-a-venture-studio/ The capital calls for the VC fund that's attached to the studio will work the same as any other VC fund.

No LP can own more then 25% of the fund and ideally they should own less then 20%.  LP ticket sizes are based on demand and capacity. Your minimum ticket for the 1st close should be not be lower then $100k.

No LP can own more then 25% of the fund and ideally they should own less then 20%.  LP ticket sizes are based on demand and capacity. Your minimum ticket for the 1st close should be not be lower then $100k.

PACT links generated via Hub don’t expire. 

PACT links generated via Hub don’t expire. 

It's more of a nice to have. If LPs are requesting it, take your deck and put the major points in each slide into a section of the executive summary.

It's more of a nice to have. If LPs are requesting it, take your deck and put the major points in each slide into a section of the executive summary.

While we can't speak specifically as to an FCA regulated fund or being the nominee thereof - there are general principles to keep in mind.   Typically, vehicles may not be considered as being helpful for a "first fund" if:  • the fund m...

While we can't speak specifically as to an FCA regulated fund or being the nominee thereof - there are general principles to keep in mind.   Typically, vehicles may not be considered as being helpful for a "first fund" if:  • the fund managers are not in complete control (and also own) of all of the fund's entities; • there is no management company (firm/brand) that will be carried over; • the fund is part of (or connected to) a larger structure (or regulatory regime) where there are entities involved that the fund managers do not control or own; AngelList is one example - as investors do not own or operate the vehicles and are considered "consultants", AngelList vehicles are not considered helpful as a track record for a "first fund" (though they may be helpful for an angel investing track record, potentially). 

On the quantitative side, cash on cash returns is the number one metric that emerging managers working on Fund II or Fund III are evaluated on, followed by unrealized markups. On the qualitative side, operating drama in previous funds, s...

On the quantitative side, cash on cash returns is the number one metric that emerging managers working on Fund II or Fund III are evaluated on, followed by unrealized markups. On the qualitative side, operating drama in previous funds, such as partner disagreements or firm turnover, affect the decisions by prospective LPs. The Thesis-alignment of portfolio investments, as well as any notable portfolio companies, are factored in. The overall quality of operations, including Deal Memos and reports, also matter. It is safe to assume that larger limited partners in Fund II or Fund III will do extensive due diligence on any previous funds.

You need to follow the general solicitation laws of the countries where you and your various counterparties are located. Here are two guides to help you navigate these matters. https://govclab.com/2022/06/28/general-solicitation/ https:...

You need to follow the general solicitation laws of the countries where you and your various counterparties are located. Here are two guides to help you navigate these matters. https://govclab.com/2022/06/28/general-solicitation/ https://govclab.com/2023/05/13/leveraging-connectors/

No. This is a bad idea. Avoid placement agents at all costs. First - the reputable placement agents rarely work with new and emerging managers.  Second - the vast majority of placement agents don't have your best interest in mind. Third ...

No. This is a bad idea. Avoid placement agents at all costs. First - the reputable placement agents rarely work with new and emerging managers.  Second - the vast majority of placement agents don't have your best interest in mind. Third - there are major broker dealer issues with this type of arrangement in many jurisdictions.  There are no shortcuts to fundraising. It's very rare that random LPs that are not 1st or 2nd degree connection will invest in first closes or even Fund 1s. If you don't have the network, you're not ready to start a fund. VC is a network business. You need an extensive network to be succesful in VC both for fundraising and for deal-flow.  

You're defining every early stage startup in the world here when you say "pre-revenue startup with a high potential and high-risk profile". Startup valuations are typically set by the market of investors and not by some methodology or sp...

You're defining every early stage startup in the world here when you say "pre-revenue startup with a high potential and high-risk profile". Startup valuations are typically set by the market of investors and not by some methodology or spreadsheet. 

Read VC Lab's Limited Partner guide: https://govclab.com/the-venture-capitalists-guide-to-limited-partners/

Read VC Lab's Limited Partner guide: https://govclab.com/the-venture-capitalists-guide-to-limited-partners/

The most effective way of sourcing LPs is via 1st or 2nd degree connections in their network. 

The most effective way of sourcing LPs is via 1st or 2nd degree connections in their network. 

No, they are not required. Also, it's absolutely critical that new and emerging managers do not engage with any vendors including lawyers until they have a minimum of 10%+ of their fund hard circled in PACTs. Finally, institutional LPs r...

No, they are not required. Also, it's absolutely critical that new and emerging managers do not engage with any vendors including lawyers until they have a minimum of 10%+ of their fund hard circled in PACTs. Finally, institutional LPs rarely invest in new or emerging managers. 

According to VC Lab's most recent nextgen manager report, 63% of new managers are over the age of 40, whereas only 5% are under the age of 30.

According to VC Lab's most recent nextgen manager report, 63% of new managers are over the age of 40, whereas only 5% are under the age of 30.

Assume that everything you hear in the media about Venture Capital is wrong. Journalists are working off bad data and the opinions of a few old VCs that are becoming irrelevant. VC Lab accelerator participants had the best fundraising mo...

Assume that everything you hear in the media about Venture Capital is wrong. Journalists are working off bad data and the opinions of a few old VCs that are becoming irrelevant. VC Lab accelerator participants had the best fundraising month in our history in June 2023.  As far as what LPs are looking for, that's an absolutely impossible question to answer because it really depends on the thesis of the VC and they archetype of the LP.

Here are some potential causes of LP concerns during diligencing on GPs: • Size of fund too large for new manager • Large # of deals per person • Poor updates  • Small network • Bad references from portfolio founders  • Bad references fr...

Here are some potential causes of LP concerns during diligencing on GPs: • Size of fund too large for new manager • Large # of deals per person • Poor updates  • Small network • Bad references from portfolio founders  • Bad references from co-investors  • Unfamiliar sector • GP is unable to openly discuss previous investment mistakes • GPs track record doesn't match the thesis

This is an impossible question to answer because LP objections are dependent on the manager's thesis and the LP archetype. Unless 1 in 5 LPs sign a PACT, a manager's thesis needs improvement. 

This is an impossible question to answer because LP objections are dependent on the manager's thesis and the LP archetype. Unless 1 in 5 LPs sign a PACT, a manager's thesis needs improvement.