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General VC Questions

What is the ideal roadmap for a successful venture capital fund?

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Jan 14, 2024
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Accepted Answer
Jan 14, 2024
The ideal roadmap for a fund depends on the phase of the fund, as well as other criteria. The fund phases and success criteria is described in detail below. 

Inception Phase

The inception phase is when the Thesis and team are developed.
When: Start when the manager or managers have the initial idea to start a fund, lasting until a final Thesis and initial team is developed
Duration: 1-2 months
Goals: Finalize a fund Thesis using the one sentence format; Identify possible Partners and Venture Partners to fill needs in the Thesis.
Targets: Get the Thesis to the point where 1 or more out of 5 people that you tell it to express interest to participate
Warnings: Do not work with service providers as this is too early; Do not make someone a partner unless you know them well over 5 years or more; Set the fund size as a minimum that you can easily oversubscribe
Commitment: Dedicate 10% to 25% of manager time to ideation and investigative meetings

Initial Fundraising Phase

The initial fundraising phase is when the initial LPs are secured, normally 1st and 2nd degree connections
When: Starts when the Thesis is complete and the managers are ready fundraise, lasting until enough capital is secured to complete a first close
Duration: 4-9 months
Goals: Activate strong Connectors to help identify limited partners; Pitch new limited partners weekly; Secure enough capital to close; Put all interested limited partners on a monthly newsletter
Targets: Have 10+ Connectors that produce an average of 3 limited partners each; Have 150+ limited partners in your Fundraising pipeline with Connectors identified; Secure 2% to 3% of the fund size on average in new PACTs from limited partners per week; Secure 10% hard circled with PACTs and another 10% soft circled for a total of at least $2 MM or greater
Warnings: Any response from a limited partner about investing that is not explicitly a "yes" is a "no"; Avoid having more than 3 meetings with any limited partner; Avoid having to teach limited partners about the venture capital asset class; Institutional investors normally do not invest in first closes and require a lot of time
Commitment: Dedicate 40% to 60% of manager time to fundraising and other time to deal sourcing

First Close Phase

The first close phase is when there is enough commitments to start a first closing, which is normally at least 10% hard circled and 10% soft circled, totaling at least $2 MM 
When: Starts when the fund has enough commitments to start a first close, lasting until first capital call is completed
Duration: 1-2 months
Goals: Secure formation vendors, including a law firm, back office, accounting firm, tax firm, and other (see Decile Partners); Form or re-use the three legal entities for a fund (management company, general partner, and fund); Complete all of the agreements for the entities and the team, and the fundraising;  Set up the bank accounts; File any necessary government forms, secure any necessary licenses, and comply with regulations; Secure signatures on the LPA to complete a closing; Send and secure the first capital call for 20% to 30% of the fund size
Targets: Secure at least 10% of your fund size or $1 MM, whichever is greater, to close; Collect 100% of the called capital within the timeframe defined in the LPA
Warnings: Do background reference checks on vendors; VC bank accounts can take weeks or months to set up; Team needs to pass AML; Limited partners need to pass KYC; Compliance requirements can be complicated; Not everyone who is interested invests and not everyone who signs wires; Closings can be expensive when not managed closely; Read all of the agreements and documents carefully
Commitment: Dedicate 80% to 100% of manager time to closing

Final Fundraising Phase

The close fundraising phase is when the managers are simultaneously closing the fund while also running hte fund
When: Starts when the fund completes a first close, lasting until the final close occurs
Duration: 9-24 months
Goals: Transfer warehoused deals; Complete investments as called capital allows; Pay the organizational expenses; Pay the fund expenses; Carefully manage management fees to do more investments; Start pitching institutional limited partners right after the fist close; Dedicate a majority of time to fundraising; Complete interim closing on a rolling basis or in batches, increasing the minimum as you go; Complete the final closing;
Targets: Complete 2 or 3 new deals; Secure 1+ markup in a warehoused deal or portfolio company; Secure 2% to 3% of the fund size on average in new PACTs from limited partners per week; Secure limited partner commitments for 150%+ of the target fund size
Warnings: Do not call more than 30% of the fund size until after the final close; Do not fundraise for longer than 24 months from the first close; Do not accept limited partners for more than 20% of the fund size; Do not invest in any deals that are off Thesis; Do not close on less capital than is your target minimum fund size
Commitment: Dedicate 60% to 80% of your time to closing; Dedicate remaining time to souring deals and running the fund

Deploying Phase

The deploying phase is when a fund is fully closed, calling capital from limited partners to make investments into Thesis aligned startups
When: Starts when the fund completes a final close, lasting until the fund deploys all of the capital or reaches the end of the active investment period
Duration: 12-48 months
Goals: Invest in the target number of deals for the target amount according to the Thesis; Invest in any follow-on opportunities or set up select follow on SPVs; Develop high quality Deal Memos for each completed deal; Organize annual LP events; Send monthly newsletters; Complete quarterly and annual fund compliance and reporting; Resolve any conflicts of interest; Collect management fees; Assist portfolio companies; Secure portfolio markups
Targets: Close 1 deal for at least 20 deals reviewed; Deploy 100% of the committed capital minus any future fees; Secure portfolio markups that put the total unrealized TVPI of the fund at 1.5x+; Secure 2+ early portfolio company success stories
Warnings: Do not start working on the next fund until you hit the successor fund threshold of the current fund; Avoid doing deals where you have multiple doubts; Only invest in deals that have the opportunity to return the whole fund multiple times; Complete proper due diligence on every deal relative to the stage and the amount invested; Keep all investment agreements and documents well organized
Commitment: Dedicate 60% to 80% of your time to sourcing and closing deals; Dedicate remaining time to helping portfolio companies and fund operations, which includes cultivating LP relationships for the next fund

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