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Stage 1 of 6

Strategy and track record

Before a fund has a name or a lawyer, it needs a reason for an investor to commit: a clear strategy and evidence that the team can carry it out. This is where most of the work of a first fund is decided.

Typical time: Often six months or more before formation begins, and for a spin-out, the time it takes to leave cleanly.

Define the strategy

Investors want to know what you will buy or lend to, at what size, where, and why you will find and win those deals when others will not. A strategy that fits in two sentences is easier to raise on than one that needs a slide deck to explain.

Write down the fund size you need to carry out the strategy, how many investments it will make, how big each one will be and how long you expect to hold them. Those numbers drive almost everything that follows: the fees, the team you can afford, and which investors are the right size for you.

Assemble the track record

A track record is the deals the team has done, with the returns, the dates and the role each person played. For a spin-out it is usually deals done at a former firm, and you will need to show what you can claim. Investors check: they call the former firm, the companies and co-investors.

Before you show anyone the record from a former employer, read your employment agreement and any partnership agreement for confidentiality, non-solicitation and non-compete terms. Many teams agree an attribution letter with the former firm that says which deals and which part of the returns they may present.

If the team has no record as a group, show what each person did and why the group will work. Some first funds start with a few deals done one at a time with investors (independent sponsor deals or deal-by-deal SPVs) to build a record before raising a fund.

Plan the economics

Model the management company: the fee income at your target size, the salaries, the office and the providers, and how long you can run before the fee covers costs. First funds commonly take one to two years to raise, and the team pays its own way until the first close.

Decide how much the team will commit to the fund itself. Investors expect a meaningful GP commitment; how much, and whether it can be paid in cash or by waiving fees, is something counsel will help set.

Checklist: strategy and track record

  • Write the strategy in two sentencesWhat you invest in, at what size, and why you win the deals.
  • Set the target fund size and portfolio planNumber of investments, size of each, holding period.
  • Build the track record scheduleEvery deal with dates, amounts, returns and each person’s role.
  • Check what you may show from a former firmEmployment and partnership agreements; agree attribution in writing where you can.
  • Collect referencesFormer colleagues, company management, co-investors who will take a call.
  • Model the management company budgetCosts until first close and after, at the low and the target fund size.
  • Decide the GP commitmentHow much the team puts in, and how it will be funded.

Terms worth knowing: GP commitment, Management fee, Carried interest, SPV, Co-investment, IRR, MOIC.

Talk to someone who has done it

Tell us what you are launching and what you need. We will introduce you to lawyers, auditors, tax advisers or a manager who has raised a first fund. Free, and we take no referral fees from anyone.

Ask for an introduction

This guide explains how fund launches commonly work. It is not legal, tax or investment advice: rules differ by fund, investor and place, and change. Speak to your own lawyers and tax advisers before you act.