Navigating the capital raising process from preparation through closing
Fundraising represents one of the most demanding and consequential activities for venture capital managers. The process requires significant time and resources, typically spanning 12-24 months for established managers and often longer for emerging managers. Success depends on preparation, positioning, relationship development, and execution across multiple workstreams.
Effective fundraising begins well before approaching prospective investors. The preparation phase establishes the foundation for the entire process.
Track record documentation requires careful attention. Institutional LPs expect detailed performance data, including gross and net returns, attribution analysis, and comparison against benchmarks. For managers with limited track record, demonstrating relevant experience through prior roles and deals becomes important.
The investment thesis should clearly articulate the fund's strategy, target sectors, stage focus, and differentiation. LPs evaluate hundreds of funds and can quickly identify generic or undifferentiated strategies. Specificity about where the fund has competitive advantages helps stand out.
Team presentation matters considerably. LPs invest in people as much as strategies. Documenting team experience, demonstrating stability, and explaining how the team works together addresses key LP concerns about execution capability and key-person risk.
Standard fundraising materials include:
Not all capital is equally desirable, and efficient fundraising requires thoughtful targeting. Different LP types have varying investment horizons, check sizes, and evaluation processes.
Institutional LPs—pension funds, endowments, foundations, and sovereign wealth funds—offer large commitments but involve lengthy evaluation cycles and formal processes. These investors typically have dedicated private markets teams conducting detailed due diligence.
Fund of funds provide access to institutional capital through a single relationship and can often move faster than direct institutional investors. The tradeoff is typically smaller individual commitments and the additional fee layer their LPs bear.
Family offices vary enormously in sophistication, process, and check size. Some operate like institutional investors while others make decisions more informally. Understanding each family office's approach helps calibrate the engagement.
High-net-worth individuals can provide meaningful capital, particularly for emerging managers. Accreditation requirements and communication needs differ from institutional investors.
LP evaluation processes typically include multiple stages. Initial screening based on materials and introductory meetings filters opportunities. Deeper due diligence follows for funds that pass initial review, involving detailed data analysis, reference calls, and often on-site visits.
Common areas of LP focus include:
Fund terms have standardized considerably, though negotiation remains part of the process. Management fees typically range from 1.5% to 2.5% of committed capital, often stepping down after the investment period. Carried interest is commonly 20% of profits above a preferred return, though terms vary.
Side letters addressing specific LP requirements are routine, particularly for larger commitments. Common provisions include most favored nations clauses, co-investment rights, reporting requirements, and compliance certifications. Managing side letter obligations requires systematic tracking.
Most funds conduct multiple closings, with an initial close establishing the fund and subsequent closes adding investors. First close timing matters—achieving meaningful capital at first close signals momentum and can influence subsequent LP decisions.
Legal documentation, subscription processing, and AML/KYC procedures must be completed for each closing. Coordination among legal counsel, fund administrator, and the fundraising team ensures smooth execution.
Fundraising success ultimately depends on having a compelling strategy, capable team, and strong execution—both in investment activity and in the fundraising process itself. Building relationships before active fundraising, preparing thoroughly, and maintaining realistic timelines positions managers for successful capital raises.