Best Practices for Launching a VC Fund in 2021

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By Kingsley Advani

After working with close to 300 private funds, I have observed what has worked for successful fund managers and what hasn’t worked. Here are some best practices!

Goal is to get to Fund II quickly

• Focus on getting to your Fund II within 12 months of launching Fund I
• This will show momentum to prospective LPs

Raise less in your Fund I, not more

• Better to close capital immediately and start deploying
• Smaller funds have historically performed better than larger funds
• Smaller funds, on average, close faster than larger funds
• The illusion of a larger capital raise often takes much longer / never happens
• The leverage for a larger capital raise typically comes from having a successful Fund I

100% upfront capital calls

• LPs invest all of the money upfront rather than spreading it out over a time period
• Avoid drawdowns if you can as they can be more complicated, incur follow up capital calls and disrupt getting to a quick Fund II

Continuously raise capital for 12 months

• This gives you more time to raise capital from LPs
• Unlimited capital raises allows you to accept capital from LPs 24/7

Leverage markups to raise more capital

• Once you’ve started making in investments in companies and they ifstart performing well e.g. if Spacex does a 2x you can add in a paper valuation markup
• Add in these markups to the dashboard to show LPs your progress

Same cost basis for all LPs

• No matter when an investor invests in the Fund during the 12 months, they all enter at the same price
• This keeps it simple and attractive to new investors
• Leverage the existing markups to attract new LPs so if there are markups they can enter the fund already ‘in the money’

Focus on family and friends

• These are more likely to initially convert than institutional investors

Give a 1 click checkout experience to LPs

• Avoid sending PDFs / docusigns to investors
• Make the investing experience fast and streamlined

Conclusion

• Be practical when raising Fund I
• Leverage best practises
• Iterate over time

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