Fundraising for VCs & Private Equity: A 15-Step Guide

Getting a business off the ground is relatively straightforward, but securing funding presents a greater challenge.

Throughout the last nine years, I've had the opportunity to work as a partner at two separate venture capital companies, and in both instances, we successfully increased assets under management tenfold.

Drawing from this experience, implementing the following 15 strategies will be instrumental in establishing a robust fundraising and investor relations operation.

1. Build the firm as much as possible before soliciting LPs

A more established firm is inherently more attractive to potential investors. Maximizing your firm’s development prior to approaching Limited Partners (LPs) is crucial. Ideally, you should make investments and hold them within dedicated entities aligned with your investment approach. However, be mindful that this activity could potentially divert your attention from the primary objective of securing funding for a full fund, rather than just a single vehicle.

Alternatively, focus on strengthening your foundational team by bringing on experienced individuals, such as forming an advisory board, recruiting venture partners, and hiring Executives-in-Residence (EIRs). Equally important is collecting input from others. Yohei Nakajima, the founder of Untapped.vc, shared, “Prior to presenting to LPs and formally establishing my firm, I engaged in conversations with over 50 contacts to gather their perspectives.”

2. Set up a basic marketing toolkit: Deck, website and social media

Creating a comprehensive, data-supported presentation and, ideally, a video introduction is essential. Your marketing materials should aim to satisfy the standards set by the Institutional Limited Partners Association, even if your focus isn't exclusively on institutional investors. Regularly update these resources to ensure the entire team shares a consistent understanding of crucial metrics, such as the total amount of capital secured to date. A lack of coordination can create an unfavorable impression.

While a presentation rarely results in direct investment, it serves as a crucial tool for securing meetings where you can effectively present your fund and its potential.

Limited partners often equate the quality of formatting with overall professionalism. Allocating resources to a graphic designer for a cohesive website, business card, logo, and presentation templates is a worthwhile investment.

Richard Dukas, CEO of Dukas Linden Public Relations, stated, “Without a website and a noticeable online presence, securing interest from prospective investors can be extremely difficult.”

Fundraising involves marketing a premium offering. Limiting broad promotion can enhance the perceived exclusivity of your fund. For instance, one limited partner expressed a preference for personalized emails from fund managers over generalized quarterly updates. Some venture capital firms, like Benchmark and Thrive Capital, exemplify this approach by forgoing a website altogether, creating an air of exclusivity. However, most funds will benefit from developing a robust social media presence.

3. Make your online profile data-driven and internally consistent

It’s essential that every member of your team maintains professional and consistent profiles on platforms like LinkedIn, and often also on Twitter, Facebook, and any other relevant social media channels. Specifically, emphasize quantifiable results from your previous experiences – for example, the value of successful company sales, the scale of teams you’ve led, or the financial resources you’ve overseen.

4. Set up a data room with a completed due diligence questionnaire

Critical information to compile within this resource includes specifics regarding investment returns, all relevant legal documentation, an organizational chart outlining the fund’s structure, the methodology behind portfolio construction, concise summaries of each portfolio company, resumes of key team members, and detailed analyses of previous investment successes. We currently utilize Digify for managing this process.

5. Prepare FAQs for prospective LPs

It’s reasonable to anticipate receiving numerous individual inquiries from individuals considering becoming Limited Partners. To streamline communication and ensure consistency, gather all your responses into a centralized document. This will allow you to efficiently reuse and improve upon these answers as needed.

6. Conduct an honest self-evaluation

Is securing funding from institutional investors a realistic possibility, or would it be more effective to concentrate on individuals with substantial assets and family offices?

Institutional investors who contribute to funds generally adopt a cautious approach. The vast majority of emerging funds successfully attracting capital from institutions typically demonstrate: (a) a conventional investment strategy aligned with the founders’ prior experience; (b) a demonstrable and verifiable history of investment success; (c) prior professional experience at a highly-rated fund performing in the top quartile; (d) a founding team of at least two seasoned individuals, ideally with a pre-existing working relationship; and (e) a target Assets Under Management (AUM) exceeding $50 million.

Should your fund align with these characteristics, you may find success similar to Homebrew, which reported raising $35 million within 100 days from “[four] institutional LPs, several smaller LPs and a few individuals” for its first fund. However, if you lack any of these qualifications, while securing institutional investment isn't impossible, it's more probable that you will need to prioritize high net worth individuals and family offices. This approach will likely require a longer fundraising timeline and result in a lower success rate compared to firms that fulfill the outlined criteria.

Julia Rhee, an advisor to Typhon Capital Management, suggests, “It’s essential to understand the specific requirements institutions use when making investment decisions. I advise reviewing an investment report from a medium-sized foundation or a due diligence questionnaire from a firm like Cambridge Associates, Mercer, or Wilshire to gain insight.”

Furthermore, it’s important to recognize that many institutional investors do not directly invest in venture capital due to the scale of their overall portfolios. They may instead engage funds or advisory firms to establish specialized vehicles for potential co-investment opportunities, or they may simply lack the necessary investment guidelines. Refer to Should You Raise A Fund? An LP’s View On Challenges And Alternatives for further information.

7. If budget permits, recruit fundraising resources

Based on your financial capacity, the personnel dedicated to fundraising efforts might encompass a part-time individual or an AI-powered scheduling assistant; advisory board members possessing strong relationships within the limited partner (LP) community; a dedicated, full-time Investor Relations (IR) lead; and/or a partner specifically focused on securing funding.

Victor Park, the CEO of CapitalIntroductions.com, suggests, “An optimal approach to establishing the IR function is to employ an experienced IR professional from a comparable fund, with the expectation that this individual can potentially cover their own compensation and/or secure a partnership share through the introduction of a key investor. Alternatively, inquire with potential investors if they can recommend individuals they have previously collaborated with who might be suitable for the IR position at your fund. The presence of someone recommended by an investor in the IR role could be a decisive factor in finalizing an investment commitment.”

8. Diligently Update Your CRM

Make certain that every member of your team consistently records all communications with prospective investors within your CRM system. Establish a clear pipeline, utilizing phases like “initial contact made” and “data room accessed,” to monitor the progression of each potential investment. The stages we employ are:

Initial Contact > Response Received > Call or Meeting Scheduled > Information Provided > Data Room Accessed > Documentation Under Review > Deal Closed.

If a qualified lead hasn't been contacted for a fortnight, initiate a follow-up message. The greater the precision with which you document all activity, the more reliable your performance metrics will be when you analyze and refine your procedures.

9. Cultivate Your Own Investor Relationships: Avoid Sole Reliance on Placement Agents

Actively utilize all your current connections – alumni networks, previous workplaces, and membership organizations. Expect a significant number of rejections, but persistent requests for introductions are crucial.

Marco Cesare Solinas, an analyst with Blue Future Partners, emphasizes the value of utilizing relationships with professional service providers, including financial institutions, legal counsel, and accounting firms.

However, Vince Timoney, managing director at First Republic Bank, cautions, “[N]ever assume these professionals will act as placement agents or secure limited partner commitments. Nevertheless, if they can connect you with individuals on your target list or broaden your network, accept their assistance. These investors might not be suitable for your current fund but could be valuable for future funds, making early engagement beneficial. Just as you would with service providers, inquire with existing LPs for potential contacts. New fund managers must actively network to achieve an initial closing; prioritize seeking support.”

I suggest prioritizing the development of your own network over engaging someone else’s, as the latter will generally yield a lower success rate. Even a highly capable placement agent will likely encounter difficulties if you don’t meet standard institutional investor criteria. Employing a placement agent, particularly one known for broad acceptance, can inadvertently present your fund as accessible to a wider, less discerning investor base. Refer to resources on The Use of Placement Agents for Emerging VC for further insight.

“Treat fundraising as a collaborative effort by involving your advisors, mentors, and current limited partners,” advises Nathan Beckord, CEO of Foundersuite. “For instance, grant your advisors access to your CRM system and specifically request they contribute 10 to 15 prospective LP leads to your pipeline. Additionally, ask them to review your target investor list and identify individuals they can introduce you to.”

10. Leverage online platforms to pinpoint suitable prospective LPs

Identifying the limited partners (LPs) most likely to invest can be challenging due to a lack of transparency in the LP landscape. Determining which LPs are genuinely interested in firms such as yours isn't straightforward. Even discovering an LP’s recent investment in a comparable fund doesn’t guarantee a positive response; they might state they are unable to invest due to overlap with their existing portfolio. Resources like Palico, Preqin and Trusted Insight can provide insights into key allocators.

A helpful tactic is to review the speaker and attendee rosters for industry conferences. For instance, if your firm is founded by individuals from an underrepresented group, focus on conferences and organizations that focus on diversity within the venture capital ecosystem (a list of which can be found here). LPs who participate in these events have demonstrated a willingness to consider a broader range of investment opportunities.

Consider participating in or hosting events frequented by potential LPs. Rather than dedicating significant effort to scheduling numerous individual meetings, attending an event allows you to connect with a large group of potential investors in a single setting.

Virtual conferences offer a unique opportunity for targeted outreach. Research the attendees’ profiles and send each person a personalized message introducing your firm. This approach is particularly effective in virtual settings, where attendees readily share their LinkedIn profiles, unlike traditional in-person events.

The Charles Skorina & Company newsletter is a valuable resource for monitoring developments within the institutional investor community.

11. Build an event database and ask organizers for speaking slots

Maintain a current compilation of prominent events geared toward investors within your target industries and locations. Regularly contact event hosts to inquire about opportunities to present. While sponsorship may sometimes require a financial investment, you can frequently secure a speaking engagement without cost if your expertise aligns well with the event’s themes or if you can contribute additional benefits.

To illustrate, offering to identify and recruit compelling speakers, or facilitating connections with potential sponsors, can demonstrate your value to event organizers and increase your chances of being selected as a speaker.

12. Control the meeting format

Always double-check meeting confirmations and redistribute your presentation materials at least one day prior to any scheduled discussion. An email stating you are “anticipating our conversation between 9 and 10 a.m. EST tomorrow. The latest version of our presentation is included here (link)” ensures all participants have a shared understanding, a vital element for successful virtual interactions.

Begin the meeting by inquiring with the Limited Partner about their preferred approach – a sequential review of the presentation or an immediate question-and-answer session. To facilitate balanced participation, aim to limit individual speaking turns to a maximum of two minutes, encouraging others to contribute. Regularly pause to solicit feedback and confirm comprehension. This practice is particularly important during phone calls, where visual cues regarding engagement are absent.

13. Perform due diligence on limited partners

Gordon Platt, an attorney and previously an investigative journalist, explains that a thorough understanding of potential limited partners is crucial, much like the careful consideration taken before a significant commitment. “Both parties need a clear picture of what they are entering into. Fund managers should gather comprehensive information about prospective LPs.”

This process not only allows managers to tailor their presentations effectively but also provides insight into what to anticipate. Key questions include verifying the LPs’ stated financial capacity, assessing their history of legal disputes, and investigating any past or present criminal, legal, or regulatory concerns. Fund managers should prioritize complete transparency, as failing to disclose information or presenting it inaccurately can lead to future legal challenges and will likely be uncovered during the LP’s own due diligence review.

Several companies specialize in assisting with anti-money-laundering compliance, such as ComplyAdvantage.

14. Onboard LPs and build a trusted relationship

It’s crucial to have your legal team thoroughly examine each investor subscription package prior to acceptance, confirming complete and accurate documentation. The process of bringing investors on board often involves substantial, repetitive paperwork and frequent communication with legal professionals. Several companies – including Anduin, Assure, FundFormer, NovaHQ, and Passthrough – have developed significantly streamlined, automated systems to minimize the required interactions.

15. Regular LP Reporting is Required After Initial Closing

Prepare comprehensive reports on a quarterly basis, distributing them within 45 days following the quarter’s conclusion. Ensure these reports fully adhere to the stipulations outlined in your Limited Partnership Agreement – for example, if the agreement requires a complete list of current investments, include this information in each report. A crucial performance indicator for investors in Fund II is the rate at which investors from Fund I participate in subsequent funding rounds.

Disclaimer: Blue Future Partners holds a position on the advisory board of ff Venture Capital, where I previously served as a partner. I also have an investment in Foundersuite through ff Venture Capital.

We extend our gratitude to Annie Schmidt from Investor Relations at HOF Capital for her assistance with the research for this article, and to Prabhat Gusain and Winter Mead of Oper8r for providing valuable feedback.