Dominate Fundraising: The Essential Checklist for Fund Managers
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Fundraising may be the hardest part of being a fund manager. It is the act of asking investors for capital, which takes time, energy, and perseverance. The industry average for first-time fund managers to complete, or “close,” a fundraise is 12 to 18 months (PitchBook), or perhaps longer if you are switching industries, conducting multiple closings, or dealing with market volatility. As one of the most challenging aspects of running a fund, it is helpful to have a full plan with a starting point, ending point, and realistic expectations on timing along the way. During the journey of building your fund, there are times you may feel lost, unsure of where to begin or what steps to take next. Thus, we prepared a Fundraising Plan Blueprint (click for the checklist) to outline the requisite steps.
The inherent challenges of fundraising combined with global market volatility, an IPO slump, recent bank failures, and lower valuations have led to a daunting time for capital raising. Plus, the fundraising pool for emerging managers is far from inviting. As a result, many have opted for alternative routes, choosing to stay on the sidelines, use existing capital, join an established fund, angel invest, or pursue other career paths while they patiently await a more favorable climate.
However, others are not backing down from the fundraising challenge. In addition to our Fundraising Plan Blueprint, below are market insights from fund managers themselves who are currently out in the market or have recently raised. We had the privilege of speaking with a few courageous individuals willing to jump head-first into the fundraising gauntlet. You know who you are, and we extend our gratitude.
Fundraising Insights From Fund Managers:
Q1: With the public market volatility, bank failures, and summer approaching, how has your fundraising plan changed?
“We cut our target by 40% and lost 1 team member.” — Fund I Manager
“We have been raising Fund III since Spring 2022. We are now extending the capital raise timeline, which is further diluting execution and focus. Also having to walk back hiring plans and passing on deals given the likely reduction in final fund size.” — Fund III Manager
“Happy to have closed oversubscribed at $35M in May 2022 and will probably start fundraising for Fund III in mid-2025.” — Fund II Manager
Q2: Are you receiving any indications to impact fundraise planning this year? Will you close less, close more, close quickly, or delay close?
“Our close is delayed by ~2 months vs. target, so we will close less than our target.” — Fund I Manager
“I believe that most allocators may not genuinely prioritize or show deep concern for impact investing. In a market climate such as this, we see allocators backing the large funds (can’t get fired for investing in a16z) or backing other funds where they are friends with the other LPs.” — Fund III Manager
“The fundraising environment has been very positive for us. LPs like the fact that we invested in the ‘AI-first’ companies thesis before AI was hot, and we have some meaningful early wins.” — Fund II Manager
Q3: What is the most unique piece of feedback that you have received from an LP in a fundraising meeting this year?
“Having a known name LP can help coalesce other investors, as LPs are susceptible to needing validation.”— Fund I Manager
“General trend is that for many years now the allocators have disliked the personal behaviors of investing professionals at their funds (arrogant, not transparent, limited operational understanding of the business, etc.) and have worried about reckless underwriting processes and concerned with placing too much focus on *speed to re-up* above all else. Interestingly, we’ve received this private feedback for many years, so we work hard to show how we operate versus their other funds. The giant “reset” button has been hit to allow the industry to slow down, catch its breath, and allow proper time for investments to mature.” — Fund III Manager
Q4: Are any themes arising in the feedback that you are receiving?
“LPs are focused on a track record of returns and concerned about high valuations in the AI space.” — Fund I Manager
“Have probably heard feedback from allocators worried about reckless underwriting processes of fund managers 30-40 times in the past 12 months.” — Fund III Manager
Q5: Will you make any other significant fundraising changes by year-end?
“Not sure—this is a mental energy game. If you’re not already a HNW person, then fund cycles are critical to your own survivability. I think most emerging and small impact investors are called to a mission, not necessarily trying to become instantly wealthy, so as the industry slows down all of us are probably revisiting our missions, our purpose, and whether we want to continue in an industry like this. I think you’ll see many emerging/impact fund managers shut down going into 2024 since many of these fund managers are A-level athletes and can only operate in these conditions for so long; the opportunity costs are too high.” — Fund III Manager
“We’re not fundraising and don’t expect to be until 2025, given our rate of deployment. Thus far, that schedule is not impacted by the external environment since it’s far out.” — Fund II Manager
While fundraising may present significant challenges, maintaining focus on your plan can be instrumental in navigating its complexities. Embrace the journey and leverage the valuable insights shared in this article to help yourself approach fundraising with confidence.
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Sincere appreciation to our contributing fund managers, written along with Shea Tate-Di Donna and Kaego Ogbechie Rust, authors of The Venture Fund Blueprint.
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Disclaimer: The providers, companies, examples, products, and services shared represent only a subset of available options and are based solely on internal fund manager conversations. These options are intended to be a general framework, not an exhaustive catalog, and should not be viewed as legal or tax advice, endorsements, recommendations, approvals, or rankings. We encourage you to do additional research into each category to find the resources that best fit your specific needs.
