Fundraising

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. 

Read the following articles: https://govclab.com/2023/04/27/lp-archetypes/ https://govclab.com/the-venture-capitalists-guide-to-limited-partners/

Read the following articles: https://govclab.com/2023/04/27/lp-archetypes/ https://govclab.com/the-venture-capitalists-guide-to-limited-partners/

Generally speaking, fund managers should err towards not accepting capital commitment increases after the Fund's Fundraising Period has ended. Issues of fiduciary duty can be implicated, depending on the circumstances, and enough of a to...

Generally speaking, fund managers should err towards not accepting capital commitment increases after the Fund's Fundraising Period has ended. Issues of fiduciary duty can be implicated, depending on the circumstances, and enough of a total increase can even trigger amended regulatory filings (which are public). In a practical sense, any such acceptances should be one-off exceptions made within a reasonable amount of time from the Fundraising Period ending. Within 3 months might be nominal, within 6 months might start to raise eyebrows, and beyond that said issues of fiduciary duty may become more pronounced. Note that the above guidelines are general, and the viability of any such acceptances may also depend on a Fund's particular circumstances (markups, exits, etc.). We strongly recommend discussing these  your fund administration team first.

Possibly - however it really depends on what kind of retirement funds/accounts are being contemplated, and where and how those funds/accounts are held. Country-specific regulations may also apply, as a general rule of thumb. For exampl...

Possibly - however it really depends on what kind of retirement funds/accounts are being contemplated, and where and how those funds/accounts are held. Country-specific regulations may also apply, as a general rule of thumb. For example, Delaware-domiciled funds working with Decile Partners may be able to accept certain retirement funds via a certain type of trust company vendor (such as Strata Trust Company, a partner) - however, doing so takes additional setup on the part of the Fund, as well as the limited partner in question. TL:DR - possible depending on jurisdiction and trust company (as applicable), but more complicated and may take longer process-wise. 

Hi Francisco, unfortunately the ‘download all at once’ option for files in a Data Room currently doesn’t exist, so you will have to download them one by one for now.  We do have this feature on our product roadmap, so we hope it will be...

Hi Francisco, unfortunately the ‘download all at once’ option for files in a Data Room currently doesn’t exist, so you will have to download them one by one for now.  We do have this feature on our product roadmap, so we hope it will be in place at some point in the near future.

There are many Chinese investors all around the world who are not citizens of China and who are excellent limited partners. Chinese citizens have various restrictions from China and from other governments, including currency controls and...

There are many Chinese investors all around the world who are not citizens of China and who are excellent limited partners. Chinese citizens have various restrictions from China and from other governments, including currency controls and restrictions on access to information, such as CFIUS, that make it difficult to accept them as limited partners in funds outside of China. As a result, Chinese citizens should be carefully vetted before being admitted as a limited partner in funds outside of China, examining the exact regulatory and currency regulations. Due to the increased complexity, Chinese citizens do not make ideal limited partners for funds outside of China when less cumbersome alternatives are present.

New and emerging managers are strongly discouraged from signing side letters. They are complicated to administer, and changing regulations require that you share them with all other limited partners in the US. This creates challenging si...

New and emerging managers are strongly discouraged from signing side letters. They are complicated to administer, and changing regulations require that you share them with all other limited partners in the US. This creates challenging situations where all limited partners will request the same "perks." The best solution is to encourage limited partners to invest is to raise the minimum between closings. Then, you can informally offer first look at co-investment and follow-on opportunities. Do not put anything specific in writing. 

The PACT is a non-binding letter of intent. You can use your proposed names for your fund in the PACT until your form your entities on first close. With regards to the domicile, given that likely will domicile in Delaware and because it'...

The PACT is a non-binding letter of intent. You can use your proposed names for your fund in the PACT until your form your entities on first close. With regards to the domicile, given that likely will domicile in Delaware and because it's by far the most popular domicile for funds, I would just leave it as is. If the LPs that sign the PACT prefer that you change the domicile later in the process, you can always edit the PACT moving forward to accomodate your local jurisdiction. 

In general, no. However, if the LP(s) invested your prior fund, it's usually good practice to let the managing partners know that you are planning to reach out to them. 

In general, no. However, if the LP(s) invested your prior fund, it's usually good practice to let the managing partners know that you are planning to reach out to them. 

The GP commit is not part of the first close because it is the General Partner's contribution to the fund, which typically amounts to 1% of the target fund size. This commitment is separate from the investments made by Limited Partners d...

The GP commit is not part of the first close because it is the General Partner's contribution to the fund, which typically amounts to 1% of the target fund size. This commitment is separate from the investments made by Limited Partners during the first close. The GP commit demonstrates the General Partner's alignment of interests with the Limited Partners and their confidence in the fund's success. It is important to follow standard protocol and not let LPs influence the GP commit during the fundraising process.

Various LP Archetypes have significantly different diligence requirements. Here are some high-level requirements: High Net Worth Individuals (HNWIs): Many HNWIs sign PACTs shortly after the initial pitch meeting and don't require a lot ...

Various LP Archetypes have significantly different diligence requirements. Here are some high-level requirements: High Net Worth Individuals (HNWIs): Many HNWIs sign PACTs shortly after the initial pitch meeting and don't require a lot of materials if any. Some may require a pitch deck or an executive summary. Family Offices: Family Offices typically require full data room access and references. Institutional LPs (Fund Of Funds, Sovereign Wealth Funds, Endowments etc..): Institutional LPs require all the information of Family Offices. In addition, they will do significantly more reference checks, diligences your back office vendors, operations systems, speak with your portfolio founders and do a lot of off list reference checks. Corporates: Corporate LPs require an enterprise sales process. Since they are investing to achieve some sort of strategic goal, they will focus their diligence on how your fund can help their company. Like most enterprise sales cycles, they can take 12 - 18 months to close or longer. For more information about the requirements of LP Archetypes, watch this video.

With high net worth individuals, the best approach is to not over inform. The more information, the more reasons for the LPs to say no. It's usually sub optimal to present this LP archetype with a data-room as a result. Rather consider u...

With high net worth individuals, the best approach is to not over inform. The more information, the more reasons for the LPs to say no. It's usually sub optimal to present this LP archetype with a data-room as a result. Rather consider using the data room to drip information as need. For example, let's suppose that the LP signed a PACT and they ask for additional information. Then, you can send them a link to the folder in your data room that contains the deck. Then, if let's say they request to learn about your team, you can unlock that folder for them. With HNW LPs less is more.

Attribution answers the question of how critical you were in making that specific investment that happen at the fund. For example - did you source the deal from external channels or were given the deal internally due to your particular d...

Attribution answers the question of how critical you were in making that specific investment that happen at the fund. For example - did you source the deal from external channels or were given the deal internally due to your particular domain expertise, for instance? The point is LPs need to believe that once you left the old fund, your personal network is strong enough to attract the best founders to your new fund. To do this, they are likely to require the following in diligence: 1) require the permission of the partners/organization to share the performance of the deals you worked with LPs  2) allow LPs to diligence records of deal related performance data and information such as Deal Memos 3) diligence records showing that you sourced and invested in those deals

All of your previous work at a venture capital fund, including the performance of the portfolio, is normally the intellectual property of that venture capital firm and can not be used without explicit consent. Consent is granted by secur...

All of your previous work at a venture capital fund, including the performance of the portfolio, is normally the intellectual property of that venture capital firm and can not be used without explicit consent. Consent is granted by securing a signed attribution letter from the venture capital firm.  Additionally, performance track record is a closely guarded secret in the venture capital industry. Funds do not want their track record shared, and also portfolio companies do not want their performance shared. As a result, securing an attribution letter to share past performance is important from both a legal and an ethical standpoint.

Please review this article on track record. 

Please review this article on track record. 

This is possible via a self directed IRA with experience in venture capital such as STRATA.

This is possible via a self directed IRA with experience in venture capital such as STRATA.

For new managers with limited investing experience, 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 ...

For new managers with limited investing experience, 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, ranging from $10 MM to $20 MM and $5 MM to $10 MM respectively.  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 lolled at favorably by all parties.  If a manager can not quickly raise 15% to 20% of the fund size from friends and confidants, then the fund size is too large. 

Delaware is VC Lab's recommended domicile in general. The Decile Launch program supports both Delaware and Ontario domiciles and we have worked with a number of venture studios. 

Delaware is VC Lab's recommended domicile in general. The Decile Launch program supports both Delaware and Ontario domiciles and we have worked with a number of venture studios. 

Start here: https://foresight.is/templates/

Start here: https://foresight.is/templates/

The management fee is structured as the average of fees over the duration of the fund, which is normally 10 years. Depending on the LPA, managers may have the discretion to charge different amount per year. Most managers choose a waterfa...

The management fee is structured as the average of fees over the duration of the fund, which is normally 10 years. Depending on the LPA, managers may have the discretion to charge different amount per year. Most managers choose a waterfall starting at 3.5% in the first years and declining to 0.5% later on. This is designed to reflect the activity of investments and returns.

There are two solutions if you encounter an LP who would like to sign the LPA with a different name/entity than their pipeline prospect entry: 1. You can add their entity (e.g. LLC) to the "Organizations" directory and then add that LLC ...

There are two solutions if you encounter an LP who would like to sign the LPA with a different name/entity than their pipeline prospect entry: 1. You can add their entity (e.g. LLC) to the "Organizations" directory and then add that LLC as a Capital Account (e.g. Closing pipeline) 2. You can add the Individual who signed the PACT as a Capital Account. Either way, the person who receives the email will have an option to modify their data before signing the LPA. If they get an email as an "individual", they will have the option to switch to an entity on the first page of the LP Onboarding questionnaire. 

VC Firms use a 3 entity structure and you can read more about it here. The 3 entities are typically two LLCs and one LP for Delaware domiciled funds. Corporations are generally not used. 

VC Firms use a 3 entity structure and you can read more about it here. The 3 entities are typically two LLCs and one LP for Delaware domiciled funds. Corporations are generally not used. 

It really depends on where the GP is in the process. If they are early, they can tell LPs that they just started the process. If they are further along, the can mention hard/soft circled amounts. 

It really depends on where the GP is in the process. If they are early, they can tell LPs that they just started the process. If they are further along, the can mention hard/soft circled amounts. 

In any case it is important to keep in mind the general solicitation rules in the jurisdictions the manager is reaching out to investors. In the U.S. for Reg D offerings unless the fund is complying with Rule 506(c), managers should ensu...

In any case it is important to keep in mind the general solicitation rules in the jurisdictions the manager is reaching out to investors. In the U.S. for Reg D offerings unless the fund is complying with Rule 506(c), managers should ensure that anyone acting on behalf of the fund does not send out emails to groups in a manner that may constitute general solicitation.  General guidance is that managers should solicit for investment only those persons they have a pre-existing relationship substantive enough to evaluate that such person is an accredited investor.

With respect to legal certification of investments in Psychedelics being fully legal is not realistic. First, you are in a grey area. Second, any law firm would charge A LOT of money to certify this, as they have liability. Third, it's k...

With respect to legal certification of investments in Psychedelics being fully legal is not realistic. First, you are in a grey area. Second, any law firm would charge A LOT of money to certify this, as they have liability. Third, it's kind of a ridiculous request given the nature of the fund. Laws change, so something legal now could be illegal tomorrow and vice versa.

GPs will often raise the minimum LP ticket in subsequent closings. Therefore, one of the main benefits to join a 1st close is the lower minimum check size.

GPs will often raise the minimum LP ticket in subsequent closings. Therefore, one of the main benefits to join a 1st close is the lower minimum check size.

The minimum ticket for a 1st close should be no less then $100k. Then with subsequent closings this minimum should go up. However, rather then communicating what the minimum ticket is to LPs, GPs should mention what the maximum ticket is. 

The minimum ticket for a 1st close should be no less then $100k. Then with subsequent closings this minimum should go up. However, rather then communicating what the minimum ticket is to LPs, GPs should mention what the maximum ticket is. 

All LPs should have the same terms, especially in Fund 1. Otherwise, you're introducing a major legal, operations and reporting burden while creating un-necessary fundraising risk due to the necessary disclosures to the other LPs.

All LPs should have the same terms, especially in Fund 1. Otherwise, you're introducing a major legal, operations and reporting burden while creating un-necessary fundraising risk due to the necessary disclosures to the other LPs.

Read this the VC Lab guide to LP archetypes. Institutional LPs are much more difficult to close as are LPs that don't know you, LPs that don't currently invest or believe in technology, LPs that are older than 65 as venture investing is ...

Read this the VC Lab guide to LP archetypes. Institutional LPs are much more difficult to close as are LPs that don't know you, LPs that don't currently invest or believe in technology, LPs that are older than 65 as venture investing is a long game, etc.

You can learn about Decile Capital here: https://decilegroup.com/decile-capital/

You can learn about Decile Capital here: https://decilegroup.com/decile-capital/

PACTs are a non-binding letters of intent signed by a qualified investors to indicate their desire to invest a specific amount of money into a venture capital fund. They are important because they help the fund manager see who is hard-ci...

PACTs are a non-binding letters of intent signed by a qualified investors to indicate their desire to invest a specific amount of money into a venture capital fund. They are important because they help the fund manager see who is hard-circled or serious about committing money to their fund. 

The best way to meet new LPs is to activate your current network to provide you with introductions. 

The best way to meet new LPs is to activate your current network to provide you with introductions. 

The majority of first closes consist of trusted 1st degree connections. 

The majority of first closes consist of trusted 1st degree connections. 

Limited Partners (LPs) are investors in your fund that provide capital. The most common types of LPs are high net worth individuals, pension funds, family offices, sovereign funds and insurance companies – just to name a few. They can be...

Limited Partners (LPs) are investors in your fund that provide capital. The most common types of LPs are high net worth individuals, pension funds, family offices, sovereign funds and insurance companies – just to name a few. They can be individuals or corporate entities themselves, but are nonetheless called LPs by you and your team. 

General Partners are the fund manager responsible for making investment decisions. You can learn more about the VC roles here: https://govclab.com/2021/10/28/venture-capital-roles

General Partners are the fund manager responsible for making investment decisions. You can learn more about the VC roles here: https://govclab.com/2021/10/28/venture-capital-roles

The Capital Commitment is normally made by the Managing Directors, who are the owners of the Management Company.

The Capital Commitment is normally made by the Managing Directors, who are the owners of the Management Company.

This is a sub-optimal approach for building an during VC firm. VCs are setup with 3 entity structures and it's highly recommended not deviate from this approach. LPs will not count the SPV as fund 1. Therefore, on the next fund, the GP w...

This is a sub-optimal approach for building an during VC firm. VCs are setup with 3 entity structures and it's highly recommended not deviate from this approach. LPs will not count the SPV as fund 1. Therefore, on the next fund, the GP will face the same fundraising challenges of all other new managers on Fund 1.

Take your deck and put it into a 1 pager. You have all the info that you need.

Take your deck and put it into a 1 pager. You have all the info that you need.

Yes. You should set a lower target and over subscribe. Fund models scale up well, but don’t scale down.

Yes. You should set a lower target and over subscribe. Fund models scale up well, but don’t scale down.

Yes it’s common that during the active investment period (up to year 3/4) management fees are higher, say 3% and in year 9 and 10 it’s .5%

Yes it’s common that during the active investment period (up to year 3/4) management fees are higher, say 3% and in year 9 and 10 it’s .5%