General VC Questions

There is a checkbox on every email at the bottom that says: "Disable click tracking and automation". Make sure this box is checked, and link tracking will be disabled.

There is a checkbox on every email at the bottom that says: "Disable click tracking and automation". Make sure this box is checked, and link tracking will be disabled.

I see. So, if we do have an potential LP--who has signed an LP pact--that wants to be a VP, is it fine for us to ask them to bring in an additional LP before we make them a Venture Partner at closing? 

I see. So, if we do have an potential LP--who has signed an LP pact--that wants to be a VP, is it fine for us to ask them to bring in an additional LP before we make them a Venture Partner at closing? 

Most funds will request a 1 or 2-year extension at that point. Then, you may distribute the equity back to LPs or you may chose to liquidate in the secondary markets. 

Most funds will request a 1 or 2-year extension at that point. Then, you may distribute the equity back to LPs or you may chose to liquidate in the secondary markets. 

I'm sorry to hear that you're experiencing difficulties with the video feature on your PACT form. I've tested it in my own sandbox account, and it worked fine. Could you please confirm whether you followed these steps: navigate to Fundra...

I'm sorry to hear that you're experiencing difficulties with the video feature on your PACT form. I've tested it in my own sandbox account, and it worked fine. Could you please confirm whether you followed these steps: navigate to Fundraising, click on PACTs, then click on PACT Content, enter the Video URL (which has to be a YouTube URL) under PACT LANDING PAGE MEDIA, and finally click on "Save changes" in the bottom right-hand corner? This will help us troubleshoot the problem more effectively.

Great suggestion. We're currently working on expanding the categories for "setting a variable" beyond % probability and will notify everyone here in the Decile Base community once additional options are available.

Great suggestion. We're currently working on expanding the categories for "setting a variable" beyond % probability and will notify everyone here in the Decile Base community once additional options are available.

We recommend that you have ~$1m in PACTs and another $500k - $1m hard to take advantage of Decile Launch.

We recommend that you have ~$1m in PACTs and another $500k - $1m hard to take advantage of Decile Launch.

Recruiting CEOs is one of the biggest challenges for venture studios. An effective way to solve this is for the Venture Studio to be narrowly specialized in one vertical. This way, the studio can build the expertise, systems, and strateg...

Recruiting CEOs is one of the biggest challenges for venture studios. An effective way to solve this is for the Venture Studio to be narrowly specialized in one vertical. This way, the studio can build the expertise, systems, and strategies to accelerate getting the company to a Series-A. If a studio executes on this strategy well with a few companies, then they can make a pretty compelling case to future experienced startup CEOs & founders in that vertical that by partnering with the studio they can get to scale much faster. 

LPs are most familiar with the 2/20 model. If you deviate from this, you will struggle to raise money, especially as an emerging manager. There are many areas to innovate as an emerging manager. Innovating on the standard fee model is no...

LPs are most familiar with the 2/20 model. If you deviate from this, you will struggle to raise money, especially as an emerging manager. There are many areas to innovate as an emerging manager. Innovating on the standard fee model is not one of them because it will create a lot friction with LPs. 

Not necessarily. Typically public benefit corporations (PBC) are taxed as a corporation like a C-Corp.  That being said, a PBC status may make it more difficult for the company to secure capital. This is because the founder has to expla...

Not necessarily. Typically public benefit corporations (PBC) are taxed as a corporation like a C-Corp.  That being said, a PBC status may make it more difficult for the company to secure capital. This is because the founder has to explain to investors why they are doing this, which increases friction. You need to make sure to DD the underlying structure of the company if there are additional reporting requirements for the company and what the impact is on their business. 

Fund managers often show various scenarios for how the fund may perform relative to the investment strategy. As an LP, it’s critical to understand the assumptions behind those projections, because models are rarely 100% accurate. For exa...

Fund managers often show various scenarios for how the fund may perform relative to the investment strategy. As an LP, it’s critical to understand the assumptions behind those projections, because models are rarely 100% accurate. For example, if the fund is pre-seed, the risk of the individual portfolio company failure is high. Therefore, to counter the risk, the manager often has to make more investments with lower check sizes and at lower valuations. The calculus for the LP is: Are the assumptions that are the basis of this manager’s strategy realistic and do they generate a high probability that the fund will make several investments that can return the fund individually?  In a Montecarlo simulation, LPs can use these assumptions as levers. For example, a lever could be the ownership % of the investment and its effect on performance. The next level in the DD process can be to think critically if the manager can realistically get that level of ownership based on their strategy, brand, deal flow, etc... Great companies command big valuations and therefore it’s hard for investors to command great ownership. On the other hand, if the company sells too much of the cap table too early, it will struggle to raise additional capital and therefore the investment will perform poorly. A Montecarlo simulation allows for a greater level of fidelity to test various assumptions and to test if the manager's strategy is grounded in reality. 

Here is a list of top GP - LP events: https://govclab.com/top-gp-lp-events-in-2024/ Most conferences are a mixed bag both for LPs and GPs. We are working to fix this, and are planning to host a new Decile Summit this year. Typically, th...

Here is a list of top GP - LP events: https://govclab.com/top-gp-lp-events-in-2024/ Most conferences are a mixed bag both for LPs and GPs. We are working to fix this, and are planning to host a new Decile Summit this year. Typically, the best events for both LPs and GPs, are small events that are hosted by GPs. If you are a GP, I encourage you to host your own events and invite your LPs and their friends. If you're an LP, I recommend that you attend GP events for the funds you're invested in because you will meet a lot of great individuals and learn some really unique insights. 

When LPs request a reference, they typically want the name and email rather than a reference letter. However, if you do plan on having a formal reference letter, ideally you want a founder and a co-investor documenting how you helped a ...

When LPs request a reference, they typically want the name and email rather than a reference letter. However, if you do plan on having a formal reference letter, ideally you want a founder and a co-investor documenting how you helped a startup be successful.  

No. Instead, send LPs a PACT. The standard PACT has NDA language prebuilt into the legal template and it's designed for this purpose. Once they sign the PACT, you can disclose more information about the fund. 

No. Instead, send LPs a PACT. The standard PACT has NDA language prebuilt into the legal template and it's designed for this purpose. Once they sign the PACT, you can disclose more information about the fund. 

Always avoid giving tax advice to your LPs. If you do, you incur enormous liability. Your answer should always be: "Please speak with your tax advisor." For your info only, there are usually tax benefits. But these are different dependi...

Always avoid giving tax advice to your LPs. If you do, you incur enormous liability. Your answer should always be: "Please speak with your tax advisor." For your info only, there are usually tax benefits. But these are different depending on jurisdiction. For example, in the US, there is QSBS. But never EVER suggest these to LPs. 

Broadly speaking, VC firms (and the funds they advise) must pursue a venture capital strategy and meet certain requirements in order to avoid registration with the SEC, under one or more "exemptions" to registration.  Registering with ...

Broadly speaking, VC firms (and the funds they advise) must pursue a venture capital strategy and meet certain requirements in order to avoid registration with the SEC, under one or more "exemptions" to registration.  Registering with the SEC brings a host of additional reporting, compliance, and governance requirements (and costs/burden) to a fund vehicle's investment advisor (often the same person/entity as the fund manager(s)) - hence funds try to avoid this at all costs unless/until their strategy requires this.  If one of these requirements is believed to be breached, then an analysis must be done to determine what exemptions the fund currently falls under, or if its investment advisor must register with the SEC (if it is not already registered). This can be a complex and nuanced analysis - we strongly recommend consulting an experienced fund attorney for assistance.  For more information, you may find the following articles generally helpful: • https://montague.law/blog/understanding-the-venture-capital-exemption/ • https://www.strictlybusinesslawblog.com/2018/05/31/the-venture-capital-adviser-exemption-explained/

Stages in the LP pipeline represent the logical steps that a prospect (potential investor) follows along in the fundraising process. These stages can range from being added to the pipeline, through various communication steps, all the wa...

Stages in the LP pipeline represent the logical steps that a prospect (potential investor) follows along in the fundraising process. These stages can range from being added to the pipeline, through various communication steps, all the way to being closed or declined. Each stage contains a series of actions that define the steps followed to determine what happens with a prospect. These actions could include sending an email to the prospect and then waiting for their interaction to progress to another stage. The system allows for automatic progression based on actions such as a prospect clicking on a link in an email or signing a PACT, but it does not currently support automatic stage changes based on inaction.

The Total Value to Paid-In (TVPI) ratio serves as a critical benchmark in assessing the performance of venture capital (VC) funds, offering insights into the return on investment for Limited Partners (LPs). This ratio is categorized into...

The Total Value to Paid-In (TVPI) ratio serves as a critical benchmark in assessing the performance of venture capital (VC) funds, offering insights into the return on investment for Limited Partners (LPs). This ratio is categorized into different performance levels: great (TVPI above 4x), good (TVPI of 2.5x), medium (TVPI of 1.5x), and bad (TVPI below 1.5x). However, the interpretation of TVPI ratios is nuanced, influenced by factors such as fund size, which can range from $5 million to $250 million, the stage of investment from pre-seed to Series B, and vintage years that reflect the market conditions at the time of the fund's inception. For example, the internet bubble era saw TVPI ratios soaring to 4.5x, demonstrating exceptional returns, which contrasted sharply with the post-bubble period when ratios dwindled to 1.5x, indicating reduced investor returns and a downturn in fund performance. The benchmark for a top decile VC fund is a Distributed to Paid-In (DPI) ratio of 3x over a 10-year period, suggesting that for every dollar invested, LPs should expect a threefold return. This ideal metric underscores the long-term investment horizon and the high-return expectation associated with top-performing VC funds. However, accessing reliable benchmarks for assessing fund performance can be challenging, as only 24% of U.S. funds report their financial returns for the 2002-2021 vintage years, according to studies utilizing databases like Pitchbook and Preqin. This limited data disclosure may introduce selection bias, possibly skewing reported results towards higher-performing funds and not fully representing the broader industry performance. Given these complexities and potential biases, caution is advised when using benchmarks to evaluate VC fund performance, especially for first-time and smaller emerging managers who might find it even more challenging to compare against industry standards. The variability in fund size, investment stages, and economic cycles, coupled with the limited and possibly selective reporting of financial returns, complicates the assessment of VC fund performance. This highlights the importance of a nuanced understanding of TVPI ratios and the context-specific factors that influence them, ensuring a more informed and balanced approach to evaluating venture capital investments.

PPMs are not common for small emerging manager funds. They are typically more common in very large funds >$50M. The legal cost is not often justified for small fund sizes. Small emerging firms typically do not manage enough money to wher...

PPMs are not common for small emerging manager funds. They are typically more common in very large funds >$50M. The legal cost is not often justified for small fund sizes. Small emerging firms typically do not manage enough money to where the legal exposure would justify it.

It's not that valuable from a sourcing or fundraising perspective. There is little benefit from being featured in CB Insights & PitchBook. They need your data for reporting reasons. 

It's not that valuable from a sourcing or fundraising perspective. There is little benefit from being featured in CB Insights & PitchBook. They need your data for reporting reasons. 

Though there are "standard seed-stage valuation methods" (Comps, VC, Scorecard, Berkus) valuation at early stage (pre-revenue) is a bit more art than science, a balance between optimism and delusion and between strategy and tactics. Fact...

Though there are "standard seed-stage valuation methods" (Comps, VC, Scorecard, Berkus) valuation at early stage (pre-revenue) is a bit more art than science, a balance between optimism and delusion and between strategy and tactics. Factors include: • Team - their ability to build a company to execute • Target market(s) size(s) • Potential for the startup to dominate, create or disrupt the market for substantial revenue • Unique Value Proposition, and is it compelling to potential customers • What is the Go-To-Market strategy • What are the economics • A realistic understanding of the competitive landscape • What is the capital investment required to get to milestones:  Proof-Of-Concept, Minimum-Viable-Product, Product-Market-Fit • What is the technology and does it scale • What is the intellectual property • What are the risks • Exit potential

That's by design. You first select your interest level, then you sign the document. Work through the PACT workflow yourself because it's pretty straight forward. They can't sign without reading the document, which is the 2nd step. So, ju...

That's by design. You first select your interest level, then you sign the document. Work through the PACT workflow yourself because it's pretty straight forward. They can't sign without reading the document, which is the 2nd step. So, just respond with something like this in your own words: After you select your interest level, you will be promoted to view and sign the PACT agreement. 

Family Offices typically require a substantial diligence process. They want to ensure that your firm will be in business for a long time and has a major edge over the 100s of mangers they diligence every year. In general, Family Offices ...

Family Offices typically require a substantial diligence process. They want to ensure that your firm will be in business for a long time and has a major edge over the 100s of mangers they diligence every year. In general, Family Offices like to invest in VC funds for direct follow on and co-investment opportunities. Be prepared to answer a litany of sourcing related questions such as: What channels do you use to source besides traditional accelerator demo days? How do you win competitive deals? What is your process for narrowing opportunities? Note: they are trying to identify that you have logical approach that you can scale.  What signal do you communicate to the market after you invest in a company? What is your co-investment strategy/policy?  Then, be prepared to share a robust data room that includes the following: Presentation, Deal Memos, References, Research, Models, Bios and Legal Agreements.

Please review the Decile Partners quarterly report template guide

Please review the Decile Partners quarterly report template guide

IRR takes into account contributions and distributions at the time of their recording; regardless of cash flow. Also, it takes into account any accrued income or expenses at the time of recording. When larger expenses are accrued, it can...

IRR takes into account contributions and distributions at the time of their recording; regardless of cash flow. Also, it takes into account any accrued income or expenses at the time of recording. When larger expenses are accrued, it can drag down the IRR in the short term and should gradually fix itself over time.

Decile Partners is an integrated flat rate firm success offering that is purpose built for emerging managers. It is optimized to fix common issues with bespoke solutions by: • Access to ultra experienced senior operations team members en...

Decile Partners is an integrated flat rate firm success offering that is purpose built for emerging managers. It is optimized to fix common issues with bespoke solutions by: • Access to ultra experienced senior operations team members ensure that Partner firms are the safest emerging firms for Limited Partners • Providing fast support through one point of contact • Filtering manager requests to surface the ideal solution via the appropriate resource • Proactively monitoring Partner firms to prevent problems  • Eliminating common vague response (i.e. 'it depends on your LPA') • Preventing managers from being subject to the common finger pointing blame game between various vendors • Reducing operational mistakes, costs and time Decile Partners have selectively migrated a few top performing firms from law firms or fund admin vendors. However, the bar for admissions to Decile Partners is significantly higher then for new firms. In addition, it is important to note that it's common for us to identify significant vendor mistakes that were critical to be addressed which increase costs. It is also likely that the offering may more expensive because the integration of services is what enables us to provide a low cost flat rate offering that is optimized for the budgets of emerging managers with small funds.

The Decile Partners venture share is is 1% of the 20% carried interest. In other-words, assume that the fund's carried interest is 100%. The Partners venture share is 5% of 100% carried interest which equals 1% of 20%. This is in line wi...

The Decile Partners venture share is is 1% of the 20% carried interest. In other-words, assume that the fund's carried interest is 100%. The Partners venture share is 5% of 100% carried interest which equals 1% of 20%. This is in line with market rates for venture partner compensation which can be reviewed at this link: https://govclab.com/venture-share/. Decile Partners is purpose built to replace a suite of venture partners, consultants and team members that collectively will require a significant larger carried interest compensation. 

Decile Launch is a structured formation program to establish the venture capital firm and to close the fund. Then, the newly launched fund becomes a member of the Decile Partners Firm Success offering for deal reviews, legal operations, ...

Decile Launch is a structured formation program to establish the venture capital firm and to close the fund. Then, the newly launched fund becomes a member of the Decile Partners Firm Success offering for deal reviews, legal operations, fund accounting, real-time reporting, and strategic advisory support. The unified Decile Partners offerings are purpose built for emerging managers and they replace a suite of vendors and team members including fund formation, legal, back office, accounting, deal review associates and specialized venture partners via one single point of contact. Decile Partners has 94 Net Promoter Score is provided at a flat rate with no hidden fees. 

Decile Hub is a powerful tool to manage relationships and commitments with limited partners. Limited partners are managed in the Fundraising pipeline. To get started, add a limited partner to this pipeline, and assign them to a Stage, su...

Decile Hub is a powerful tool to manage relationships and commitments with limited partners. Limited partners are managed in the Fundraising pipeline. To get started, add a limited partner to this pipeline, and assign them to a Stage, such as "Meeting." Then, you can email the limited partner using the "Send email" button or using the default email templates for the Stage. You also have the ability to send limited partners a PACT through the Fundraising pipeline to secure a non-binding commitment from the limited partner to invest. Try the different Stages and review the various email templates available to help manage limited partners in Decile Hub, customizing the experience as needed.

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 PhaseThe inception phase is when the Thesis and team are developed. ...

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 PhaseThe 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 PhaseThe 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 PhaseThe 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 PhaseThe 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 PhaseThe 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

This is a slippery slope and you will struggle to make this point, irrespective of the data. LPs should understand that, albeit low, there is a risk of total loss when investing a VC fund. However, because the upside is exponential and b...

This is a slippery slope and you will struggle to make this point, irrespective of the data. LPs should understand that, albeit low, there is a risk of total loss when investing a VC fund. However, because the upside is exponential and because the VC fund takes a portfolio approach, the probability of the LP investing a massive success is much higher.  If you are in a conversation with an LP and you're discussing 'risk mitigation' you have lost. VC is a risk asset class. It's an asset class that's optimized for maximum upside rather then for downside protection. This is especially true for early stage funds like yours. So, if the conversation is trending towards risk mitigation, you need to take charge and tell the LP that this is investment is optimized for maximum upside via the portfolio approach. No historical data is going to convince a risk averse LP invest in a VC fund.

Funds can't accept advisory options because they are for individuals. However, funds can accept warrants. This is why base is aggressively against this arrangement. If you receive advisory options, you can't move those to the fund becaus...

Funds can't accept advisory options because they are for individuals. However, funds can accept warrants. This is why base is aggressively against this arrangement. If you receive advisory options, you can't move those to the fund because those options are granted to you, the individual. 

We have developed an article for GPs to share with LPs: https://govclab.com/2023/04/26/how-to-invest-in-vc/. That being said, your proposed approach will not work. Sending LPs information about how the emerging managers over-perform othe...

We have developed an article for GPs to share with LPs: https://govclab.com/2023/04/26/how-to-invest-in-vc/. That being said, your proposed approach will not work. Sending LPs information about how the emerging managers over-perform other asset classes is a guaranteed fail. LPs that invest in new and/or emerging managers invest in the Managing Partner(s) because they believe that those INDIVIDUALS are uniquely qualified to executed on the thesis and they resonate with the thesis and want to be part of the mission. If an LP asks you questions like: how does this compare to investing in [insert asset class], you have lost. This is a no and you will struggle to recover from this. That means that your pitch was un-succesful. 

Feature requests for Decile Hub can be shared in the Decile Base Hub Feedback channel, which can be found here: https://www.decilehub.com/base/40-hub_feedback. Your insights and suggestions are always welcome as they help improve the pla...

Feature requests for Decile Hub can be shared in the Decile Base Hub Feedback channel, which can be found here: https://www.decilehub.com/base/40-hub_feedback. Your insights and suggestions are always welcome as they help improve the platform.

Yes. It's not uncommon for large LPs to want to request to be on the IC. That being said, you need to be very careful with who you nominate on the IC because it is making investment decisions for the fund. 

Yes. It's not uncommon for large LPs to want to request to be on the IC. That being said, you need to be very careful with who you nominate on the IC because it is making investment decisions for the fund. 

VC Lab has developed a free Venture Share Agreement that is designed to be used by venture capital firms and Venture Partners alike to quickly start working together. The template agreement is designed to specify the duties and compensat...

VC Lab has developed a free Venture Share Agreement that is designed to be used by venture capital firms and Venture Partners alike to quickly start working together. The template agreement is designed to specify the duties and compensation of a Venture Partner by checking boxes. All the details can be found here: https://govclab.com/venture-share/ IMPORTANT: All conversations about VP compensation should be high level over a call. Do not put anything in writing until after you have formed and performed a 1st close. These agreements are between the VP and the fund, so none of this can take place until the fund is operational. Below is a summary: [Image]

The main metrics track record metrics are IRR, TVPI & DPI. However there are others that you can review in this question. In addition, you may also find this article helpful. 

The main metrics track record metrics are IRR, TVPI & DPI. However there are others that you can review in this question. In addition, you may also find this article helpful. 

TL'DR - leave your valuation policy in-tact and manage these LP communications at the newsletter/report summary level rather then at the financial level. Each quarterly/yearly report where you include financial statements should be accom...

TL'DR - leave your valuation policy in-tact and manage these LP communications at the newsletter/report summary level rather then at the financial level. Each quarterly/yearly report where you include financial statements should be accompanied by a newsletter that summarizes the information. In the newsletter, you can discuss this investment. ---- Tokens are considered non-qualified investments in VC funds. Each VC fund can allocate up to 20% of the capital to non-qualified investments. Because of this, as well as several other factors, it's unusual for VC funds to have a valuation policy that also manages tokens. Crypto/Blockchain/Web3 funds generally keep the tokens and the equity separate. The equity gets managed via a traditional valuation policy, financials approach and fund structure. The tokens are often managed by a different valuation policy, custodial policy and often a separate hedge-fund like structure.  So, you have 2 options here: 1. Setup the infrastructure to handle crypto which is expensive and complicated given that your Fund 1 is operational. 2. Manage the communications with current LPs via your newsletter/report summary and leave everything else in-tact.  I recommend approach 2. Unless you plan launching a blockchain/crypo/web3 focused fund 2, it's just not worth the hassle to research all this so you can come to the same conclusion.

Valuation increases are determined by the fund's valuation policy. In venture capital, the valuation of the company is typically set by priced equity round. Other inputs don't factor in unless the fund is writing down a company. 

Valuation increases are determined by the fund's valuation policy. In venture capital, the valuation of the company is typically set by priced equity round. Other inputs don't factor in unless the fund is writing down a company. 

Underrepresented represents the demographics of the founder (gender, ethnicity, economic background, underserved region for example.) Overlooked relates more to some investors' bias or the founder's lack of access or influence. This cou...

Underrepresented represents the demographics of the founder (gender, ethnicity, economic background, underserved region for example.) Overlooked relates more to some investors' bias or the founder's lack of access or influence. This could be a first-time founder or someone not from a central tech hub.  A great underrepresented founder can be overlooked. An overlooked founder doesn't necessarily mean they are underrepresented. 

Fund operations providers such as Decile Partners generate full financials for Limited Partners including: • Statement of Assets, Liabilities, and Investors' Capital • Income Statement  • Schedule of Investments • Statement of Changes in...

Fund operations providers such as Decile Partners generate full financials for Limited Partners including: • Statement of Assets, Liabilities, and Investors' Capital • Income Statement  • Schedule of Investments • Statement of Changes in Investor's Capital Limited Partners can access the above documents via their Decile Pro dashboard along with reports and the following additional metrics: • Portfolio Net IRR • Portfolio Fair Market Value • Capital Account Summary Reports summarizes the information outlined above and it's common for funds to highlight the following metrics:  • Committed Capital • Called Capital • Portfolio Investments • Cap Adjusted TVPI* • TVPI • DPI * The Decile Group valuation policy provides a Cap Adjusted TVPI projection which takes the cap defined in a SAFE note as the valuation of portfolio companies, which may be high depending on future financings.

You can find more resources at this on the Foresight website here: https://foresight.is/fund-resources

You can find more resources at this on the Foresight website here: https://foresight.is/fund-resources

Securing Limited Partners is a formidable task that demands persistence, meticulous research, and strategic networking. For the average fund, this means courting nearly 250 LP prospects and pitching to a majority of them, only to culmina...

Securing Limited Partners is a formidable task that demands persistence, meticulous research, and strategic networking. For the average fund, this means courting nearly 250 LP prospects and pitching to a majority of them, only to culminate in a select few actual commitments. This article elucidates the exhaustive process, underscoring the challenges and providing a roadmap to effectively source and close LPs in the investment realm. Researching LPsSourcing potential Limited Partners necessitates the usage of multiple research platforms. These platforms, whether digital tools or networks, provide data and insights about potential LPs, their investment behaviors, and affiliations. • LinkedIn: A hub for professionals, it can identify LPs by job titles, backgrounds, and company affiliations. • CrunchBase: This platform offers insights into businesses and their associated stakeholders, ideal for locating previous investors. • AngelList: Geared towards startups, it provides data on venture capitalists and angel investors. • Professional Networks: Industry-specific groups or associations can have directories to identify potential LPs. • Alumni Networks: Educational affiliations can reveal potential LPs, as many alumni invest in ventures related to their alma mater. • Coworkers: Past and current colleagues can offer introductions or insights on potential LPs. • Web Searching: General internet searches using specific keywords can lead to potential LPs or their affiliations. Incorporating a variety of these platforms into a research strategy can enhance the depth and breadth of potential LP discovery, creating a solid foundation for the engagement process. Keywords for LPsResearching LPs is difficult. Most do not self identify, and there are fake LPs, seeking attention and opportunities, as well as inactive LPs.  Identifying real LPs requires searching with a combination of less obvious keywords, such as “Multi-Family Office Chief Investment Officer”, on LInkedIn, and then carefully filtering the results by individually researching each person. Many don’t invest in VC. Looking at what Boards they serve on, their interests, or their investments are obvious signals, but some of the largest LPs are mostly silent online. 1 in 20 in a well formatted search might actually be a LP due to the high level of noise. Here are some keywords to use in different categories to start searching for LPs: Job Title• Chief Investment Officer • Investment Director • Institutional Investor • Angel • Venture Partner • Exited Entrepreneur Background• Private Equity • Angel Investing • Private Investing Company Description• Investment Firm • Family Office • Fund of Funds • Endowment Fund • Hedge Fund • UHNW (Ultra High Net Worth) • Acquired LP Archetypes• Personal Friends: These individuals, often within the social circle of a venture capital fund’s general partners, invest in the fund based on trust and rapport. They believe in the expertise and judgment of the general partners and may provide additional resources or connections to support the fund. • Angel Investors: Wealthy individuals who invest in startups at an early stage and may also invest in venture capital funds to gain access to a broader range of investment opportunities. Their experience, mentorship, and connections can be valuable for the fund and its portfolio companies. • Alumni Networks/Affinity Networks: Individuals connected through shared educational or professional experiences, such as alumni of prestigious universities or members of industry associations, may invest in venture capital funds as part of their broader investment strategies. These networks can provide access to a diverse pool of potential LPs who share common values, experiences, or interests, and can contribute valuable connections, resources, and insights to the fund and its portfolio companies. • Tech Executives: High-ranking professionals within the technology sector invest in venture capital funds to leverage their industry insights, connections, and expertise. They can identify and support the next generation of technology-driven startups, making them valuable partners for the fund. • Small Business Owners: Entrepreneurs who have built successful small businesses often invest in venture capital funds to diversify their investment portfolios and contribute to the growth of innovative companies. Their unique perspectives on business operations and customer needs can be valuable for the fund and its portfolio companies. • Exited Founders: These successful entrepreneurs have built and sold their own companies, and now seek to invest in new ventures. They bring valuable experience, industry knowledge, and connections to the table, making them attractive partners for venture capital funds. • High Net Worth Individuals (HNWIs): Wealthy individuals interested in diversifying their investment portfolios often turn to venture capital funds. They may have personal interests or expertise in specific industries, which can add value to the fund and its portfolio companies. • Family Offices: Representing wealthy families, these private wealth management firms invest in venture capital funds as part of their diversified investment strategy. They aim to grow and preserve the family’s wealth while contributing to the success of innovative companies. • Bankers: Financial professionals with deep knowledge of finance and investment strategies may invest in venture capital funds to capitalize on their industry connections and expertise. Their background in finance can be an asset for the fund and its portfolio companies. • Corporations: Large companies interested in investing in venture capital funds to gain exposure to emerging technologies and trends, as well as to identify potential strategic acquisitions or partnerships. Corporate LPs can provide valuable industry insights, connections, and resources to the fund and its portfolio companies. • Corporate Venture Capital (CVC): Large corporations that invest in venture capital funds to gain access to emerging technologies, trends, and potential strategic acquisitions. Their industry expertise, resources, and connections can help accelerate the growth of portfolio companies. • Venture Capital Firms: Established VC firms may invest in other venture capital funds, particularly those with a specialized focus or unique investment thesis. This can provide them with access to a broader range of investment opportunities and the ability to co-invest in deals that align with their own strategy. Investing in other funds can also be a way for VC firms to diversify their portfolios and share risk. • Next Generation Wealth: Offspring of wealthy families, these individuals seek to establish their own investment track record and contribute to the growth of innovative companies. Their family connections and resources can be valuable for the venture capital fund. • Fund of Funds: These investment firms focus on investing in other funds, including venture capital funds. They seek exposure to a diverse range of startups and industries through their investments, while offering additional resources and expertise to the funds they invest in. • Sovereign Wealth Funds (unlikely for Fund I): State-owned investment funds that invest in various asset classes, including venture capital. They aim to generate long-term returns and support their nation’s economic development, offering significant capital and a long-term investment horizon. • Endowments (unlikely for Fund I): Institutional investors like universities and foundations invest in venture capital funds to support their missions and generate returns that sustain their operations. They often have long-term investment horizons and can provide stability to the fund. • Insurance Companies (unlikely for Fund I): These organizations invest in venture capital funds to diversify their investment portfolios and seek higher returns compared to traditional fixed-income investments. Their experience in risk management can be an asset for the fund. • Pension Funds (unlikely for Fund I): Institutional investors managing retirement savings for employees, these funds invest in venture capital funds to diversify their portfolios and generate long-term returns for their beneficiaries. Their large asset base and long-term investment horizon can be beneficial for the venture capital fund. Develop Personas for Targeted LP ArchetypesOnce you’ve identified three LP archetypes that align with your fund’s goals, create detailed personas for each. This will help you better understand their motivations, pain points, and interests, allowing you to tailor your outreach and communication. When developing personas, consider the following factors: • Background and professional experience • Investment history and preferences • Personal interests and values • Network and connections Sample Persona for an LP Archetype (Exited Founder): Simon Thompson, an exited founder, made his fortune after successfully selling his e-commerce startup to a tech giant. A software engineer by trade, he ventured into entrepreneurship in his mid-30s, building a revolutionary platform that streamlined online retail experiences for both consumers and businesses. As a limited partner in a venture capital fund, Simon is particularly interested in backing startups that leverage cutting-edge technology to transform traditional industries. With a keen eye for innovation and an impressive network of industry connections, he adds immense value to the fund beyond his financial contributions. In his personal life, Simon is a passionate advocate for education and workforce development, actively supporting initiatives that empower underrepresented communities in the tech industry. Balancing his roles as a mentor, philanthropist, and investor, Simon is driven by a desire to create meaningful impact and help shape the future of technology. Sample Persona for an LP Archetype (Corporation): Natalie Johnson is Head of Strategic Partnerships at GreenTech Solutions, a leading clean energy corporation. She is responsible for identifying and fostering relationships that can drive the company’s growth and innovation. With over 15 years of experience in the energy sector, Natalie has built a reputation for her ability to spot emerging trends that shape the industry’s future. As an LP in a venture capital fund, she is particularly interested in discovering promising startups that could lead to strategic partnerships, joint ventures, or acquisitions for GreenTech Solutions. In her personal life, Natalie is a devoted advocate for environmental sustainability and social responsibility. She frequently speaks at industry conferences and mentors young professionals entering the clean energy sector. “Helpful Tip: Utilize Chat GPT to develop comprehensive LP personas by providing a detailed prompt, such as: “Create a persona for a high net worth individual interested in investing in a venture capital fund focused on clean energy. Include background, investment history, personal values, and network connections.” This will help you obtain a well-rounded persona that can guide your outreach strategy.” Create Target Lists of Actual LPsWith personas in hand, start building a target list of potential LPs for each archetype. Leverage your network, industry events, and platforms like LinkedIn to identify individuals and organizations fitting your criteria. Keep track of your prospects in a spreadsheet or CRM, including their contact information, relevant background, and any mutual connections. “Helpful Tip: Prioritize LPs with a history of investing in funds with similar Thesis or focus areas as yours. This demonstrates an existing interest and may increase the likelihood of a successful partnership.” Test ReceptivenessBefore launching a full-scale outreach campaign, test the receptiveness of each LP archetype by engaging a small sample from your target list. Prepare a compelling pitch that highlights your fund’s unique value proposition, investment thesis, and team credentials. Tailor your pitch to address each archetype’s specific interests and motivations, based on the personas you developed. “Helpful Tip: Test different communication channels (e.g., email, phone, LinkedIn) and messaging styles to determine which resonates best with each archetype. Track engagement metrics such as open rates, response rates, and meeting conversions to measure effectiveness.” Refine Your ApproachAs you engage with potential LPs, it’s essential to continuously refine your approach to ensure optimal results. Regularly assess your interactions with each LP archetype to identify areas for improvement or optimization. Make necessary adjustments to your pitch, communication style, or outreach channels based on the feedback and responses you receive. It’s also crucial to be aware of the limitations and potential pitfalls of pursuing certain LP archetypes. Some may consistently produce small checks or lose interest in your fund over time. In such cases, it’s important to recognize when to stop pursuing an archetype that’s not yielding the desired results. Instead, shift your focus to new LP archetypes that may align better with your fund’s goals and investment thesis. During this iterative process, maintain a balance between persistence and adaptability. Understand that building strong LP relationships takes time, and you may need to explore various archetypes before finding the right partners. Continuously analyze the performance of each archetype and replace underperforming ones with newer, more promising alternatives. This approach will help you maximize your chances of success while ensuring that your fund is supported by a diverse, committed group of LPs. “Helpful Tip: Use analytics tools to track and measure key performance indicators (KPIs) such as response rates, meeting conversions, and average investment size, enabling data-driven decision-making when refining your approach.Helpful Tip: Stay informed about industry trends, news, and events that may impact LP interests or preferences, and adjust your pitch and outreach strategy accordingly to maintain relevance and resonance with your target audience.” Connectors to LPsConnectors are individuals or entities that are 1st degree connections of the manager who have strong 1st degree connections to Limited Partners. They bridge the gap between managers and potential LPs, making trusted introductions to potential LPs. To identify Connectors,  managers review friends, alumni, past colleagues, industry acquaintances, or professionals met at conferences. Use LinkedIn to see if they have 1st degree connections to any Limited Partners on the LP target list. For Connectors with strong relationships with target LPs, managers set up a meeting. The goal of the meeting is to catch up and share what each party is working on, including the fund. If the meeting is going well, the manager asks if the Connector is open to helping to make any introductions, and the manager also offers to help the Connector with anything. Connector Best PracticesConnectors play a vital role in fundraising for venture capital funds. Here are some best practices: • Offer to Help: Help a Connector with something that they need first to demonstrate that it is a mutually helpful relationship • Keep Up-to-Date: Inform the Connector of the status of any introductions so that they can help close • Measure Success: Track which Connectors are generating the most referrals and closes for deeper engagement • Send a Newsletter: Keep Connectors on the monthly newsletter so that they know more about the fund • Check in Quarterly: Organize a short check-in call quarterly with the best Connectors to find new leads • Invite to Events: Invite the strongest Connectors to LP events and other industry functions General Solicitation ConsiderationsIn many countries around the world, managers are prevented from soliciting investment from people that they do not know and from people that are not wealthy. It is important that the manager understands the general solicitation rules and helps the Connector follow the rules, as well. To this end, the Connector can introduce the manager individually without mentioning the fund. Compensating ConnectorsCompensation should avoid triggering broker-dealer regulations. GPs shouldn’t offer, nor should Connectors seek, a percentage of capital raised. Alternative compensations can include dinners, business assistance, prioritizing introductions, or considering them for a venture partner role, provided it’s not tied to capital raised. LP ConstructionVenture funds usually employ a phased approach when securing commitments from Limited Partners. The First Close often captures between 10% to 25% of the target fund size.  Funds attract smaller investors at first that are normally close to the managers, followed by larger investors later on after the fund has operationalized. This is, in part, a de-risking strategy by larger LPs, and it also often takes larger LPs more time to close.  Managers are advised to set up a fund closing model with targets that include monetary goals and LP Archetypes. Using the example of a $10 million fund, the fund closing model might look like this: $1 MM LPs: 2 for $2 MM• Family Offices: These firms represent wealthy families and invest to both preserve and grow the family’s wealth, often having access to significant resources. • Fund of Funds: Investment firms that focus on backing other funds, offering access to a broad range of startups and industries, and providing resources and expertise to the funds they invest in. • Corporate Venture Capital (CVC): Corporate entities looking to invest in emerging trends and technologies, bringing industry expertise and significant resources. $500K LPs: 6 for $3 MM• Exited Founders: Entrepreneurs who have previously built and successfully exited businesses, bringing with them vast experience and potentially beneficial connections. • Tech Executives: Individuals at the forefront of technological advancements, bringing industry insights and a deep-rooted network. • Next Generation Wealth: Younger individuals from wealthy lineages aiming to carve their own investment legacy, potentially leveraging their family’s resources and connections $250K LPs: 12 for $3 MM• High Net Worth Individuals (HNWIs): Wealthy individuals seeking diversification and possibly harboring a personal interest in sectors the fund might target. • Bankers: Those from the financial sector, potentially offering a robust understanding of finance and a vast network. • Venture Capital Firms: Larger VC firms may participate, especially if the new fund offers a unique access to trusted dealflow. $100K LPs: 20 for $2 MM• Personal Friends: Investing based on deep trust and belief in the general partner’s acumen and potential. • Alumni Networks/Affinity Networks: Professionals united by common educational or professional backgrounds, offering shared values and a myriad of connections. • Angel Investors: Well-to-do individuals seasoned in backing startups, and who might be looking to diversify through a venture fund. LP Closing ProcessClosing a Limited Partner involves a number of steps and can often take multiple months, sometimes even years. A rough outline of the closing process is below: 1. Source the LP: Conduct basic research around likely LP Archetypes to find a list of 150 to 500 Limited Partners to target for a full fund closing. This sourcing is an ongoing process over months during the full fund closing. 2. Meet with the Connector: Arrange a meeting with your identified Connector. In this meeting, discuss what you are working on and ask if the Connector can help identify any LPs, sharing the names from your research. 3. Secure an Introduction: If the Connector believes a suitable LP is in their network, ask them to facilitate an introduction. Ensure this introduction focuses on you or your team rather than directly mentioning the fund or Thesis. 4. Hold an Initial Meeting: After a successful introduction, set up a meeting with the potential LP. This meeting aims to build rapport and establish a relationship before pitching to comply with general solicitation rules.. 5. Hold Pitch Meetings: Once a relationship is established and the LP is qualified, organize pitch meetings to present the fund. In this meeting or meetings, describe the Thesis with your value add and address any questions. 6. Provide Materials: It’s likely that the LP will request further information or documentation either before or after the meetings. It is recommended that the manager secure a non binding commitment letter, a PACT, before sending materials. 7. Secure a PACT Commitment: When an LP expresses interest, requests materials, asks for Data Room access, or seeks multiple meetings, the manager asks the LP to sign a PACT to indicate their investment interest. This “hard circles” the LP as a serious investor. 8. Respond to Due Diligence: Larger and more serious LPs will complete due diligence and review the fund Data Room, which includes fund materials, legal agreements, portfolio company information, team biographies, and references. 9. Complete a Legal Review: Lawyers from the LP will review the LPA and may ask for a Side Letter to secure special terms. The manager normally coordinates the answers to legal questions and negotiates against any special terms. 10. Sign the Agreements: Once the questions are resolved and any special terms are negotiated away, the manager sends the LPA to the LP for signature. Depending on the LPA, the Subscription Agreement and LPA may be hundreds of pages and complex to sign, taking days. 11. Complete a Capital Call: After signing, the LP is sent a Capital Call to send in a percentage of their commitment that catches them up to the level of all other LPs in the fund. It is normal for managers to call 20% or 25% on first closing. Setbacks  A common LP scenario in venture capital is called “LP Love.” This term captures the tendency of some Limited Partners to engage fund managers extensively, consuming substantial amounts of their time without ever saying “yes” or “no.” While LP Love can be a genuine drain on resources, it is one of several setbacks in the LP closing process. • Seasonality: Investment cycles and fiscal year-ends can influence LP decisions. For instance, an LP might delay decisions due to vacations or a forthcoming budget. • Changing Market Conditions: Sudden market volatilities or economic downturns can prompt LPs to reconsider their investment strategies, pushing commitments to the future. • Shifting Industry Trends: Evolving trends in the industry can divert an LP’s focus. A surge in a new technology or a decline in a particular sector’s prospects influence LP decisions. • Internal Problems: Challenges within the LP’s organization, such as leadership changes or strategic overhauls, can stall or terminate potential investments. • Liquidity Setbacks: Even if an LP is interested, they might face capital constraints or other liquidity issues that prevent them from committing. Recognizing these potential setbacks early can equip fund managers with strategies to navigate them, ensuring smoother LP engagements and mitigating prolonged periods of uncertainty. LP Rejections  LPs rarely say, “no,” but they do say things that tell you their answer is a “no.” In venture, anything that is not a “yes” is a “no,” and here are some examples of things that LPs say which effectively mean, “no”: • Delayed Response: After multiple follow-ups, the LP might remark, “I’ve been swamped lately and haven’t had a chance to review.” • Resource Constraints: They might mention, “We are currently overallocated in venture, and I will let you know when this changes.” • Alternative Investments: The LP could note, “We’re currently exploring some other opportunities that align closely with our focus.” • Strategic Shifts: A common indication is, “Our investment focus is undergoing some changes right now.” • Seeking More Data: By saying, “Can you provide more detailed projections?”, the LP might be stalling the decision. • Concern Over Team: A subtle hint could be, “How experienced is your management team with ventures of this scale?” • Market Concerns: An LP might remark, “The market seems quite saturated; how do you plan to differentiate?” • Return Potential: Expressing concerns like, “The projected returns seem optimistic given the risks,” indicates hesitancy. • Fit with Portfolio: An LP might say, “We typically invest in different sectors or stages.” • External Advisors: They could note, “Our advisors have raised some concerns that we need to address.” Recognizing these indirect refusals early can help in redirecting efforts and refining the approach for future interactions.

The LP needs to speak with their CPA about QSBS and you really should avoid providing advice here. QSBS is complicated and some LPs may not qualify. Providing LPs with tax advice creates a lot of problems for you. 

The LP needs to speak with their CPA about QSBS and you really should avoid providing advice here. QSBS is complicated and some LPs may not qualify. Providing LPs with tax advice creates a lot of problems for you. 

No. We do not recommend parallel funds for new and emerging managers. They introduce an enormous amount of complexity as well as additional costs. 

No. We do not recommend parallel funds for new and emerging managers. They introduce an enormous amount of complexity as well as additional costs.