Fundraising process for a 1st time emerging fund manager: insights from an outsider

If you are new to the venture capital (“VC”) world, you might be surprised to learn about the process founders go through in order to raise capital from investors (angel investors and VC firms for the most part). They have to undergo a series of meetings, answer a number of questions, prove their track record (especially at the very early stages of a startup), and, finally, secure funding. There are certainly a lot of smaller steps in between those, but for the sake of simplicity, let’s leave it at that. The fundraising process for general partners (“GPs”) is somewhat similar, except: you cannot fundraise in public, you can only raise capital from a limited number of investors, and, at the end of it all, you become a professional money manager.

As an outsider to this space (and, having never fundraised for anything before in my life), I was quick to reach out to the experts. About 2 months ago, I decided to apply for Cohort 8 of VC Lab (https://govclab.com/ ) - and was admitted. With wide-eye curiosity and wild anticipation, I joined the program, which is something I highly recommend to anyone interested in seriously launching their own VC firm. Over the last 8 weeks, I have learned and directly applied all the concepts laid out during the program and, though I still have much to learn, I also find that I bring a unique perspective to this fascinating world of venture capital. 

Here are 3 of my main takeaways from the fundraising process as I have experienced it so far:

1. If you are not very clear on what your investment thesis is, you will have a hard time articulating your “unfair” advantage. You can think of the “investment thesis” as your focused area of investment (geography, company stage, sector) plus what makes YOU uniquely qualified to select, invest in, and support these companies in achieving massive growth. For example, I like to explain how I fell in love with the natural world at a really early age (thanks to my dad who was an agriculturist engineer) and how I finally found a way to combine my love for action against climate change and my deep background in economics and finance. I am uniquely qualified to tap into my area of expertise and quickly add value as an investor and mentor to climate tech companies - helping them craft their financial communication strategy during fundraising or devising a pricing or GTM strategy so they can catapult their revenue growth. Whatever is it that makes you unique is where you can find the inspiration and raison d’être for your investment strategy.
2. You need to find the right investors for your fund. In order to raise a multi-million dollar fund, you are going to have to talk to and pitch to lots of people. These people should ideally be people already in your network or, at a minimum, people who have been referred to you by the former. As an outsider, it is very important to learn how the best limited partners (“LPs”) are sourced and how to talk to them about your fund. After having a meaningful number of conversations with potential investors, an LP archetype will emerge. This is the ideal investor for your fund - the one who is mission-aligned with your strategy and values and/or for whom the opportunity is very evident. For example, in my case, I noticed my archetype LP falls usually in one or all of these categories: climate conscious individuals (these are people who have dedicated most of their lives to the fight against climate change), people who know me very well and choose to take a bet on me based on our prior professional relationship, and those who understand that there are meaningful barriers to VC for underrepresented GPs (and can acknowledge I bring a fresh perspective). When you find the archetype, you can fine tune your LP sourcing strategy and focus your attention on pitching this specific investor sub-group. A targeted approach will help increase your odds of successfully closing your fund.
3. Don’t forget that this is the business of people and long-term relationships. As you begin your journey of building an enduring VC firm, you might find that you are challenged by some of the technical terminology, the finance concepts and application, and the fund formation process, not to mention the fact that you are still actively fundraising to get to a first close. You are likely putting lots of hours of work into each aspect and, sometimes, it can be easy to forget to focus on building relationships for the long-term. Yet, this is, in my opinion, the most important building block of your fund, especially if you are a first-time emerging fund manager. Think of it: angel investors and VCs invest in companies that they help grow and, most of the time, they do not get to see a return on their investment until 10+ years later, if at all. For GPs, it is also crucial to build strong relationships with their LPs, potential LPs, peer GPs, founders they invest in (or pass on - remember: you are building long-term rapport), advisors (or subject matter experts who support due diligence), and operators in sectors they invest in. For example, I like to say that I always play the long game. This has served me well in both my personal and professional life. I do not discount anyone I meet - everyone has the potential to surprise you. You just need to give them some space and time to do so. Maybe you are the person they needed to meet and engage with to take that next step in their journey. Maybe they are the person you needed to meet at this exact moment in life. Everyone has something to bring to the table - if you pay attention, you might notice the diamond in the rough.

If you want to learn more about my experience with VC Lab, please feel free to reach out to me. The contents of this article are for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice.