Raising money for a venture capital fund is a bit like raising money for a startup

Alan Patricof is one of the most experienced and successful VCs around.  He was one of the founders of Apax Partners which is one of the most successful venture and private equity companies in European history and his investment successes include Apple Computer and AOL.  Most recently he founded an early stage venture fund called Greycroft Partners based in New York and they have just closed their second fund.

Raising the money for that second fund was hard work, even for a man with Alan’s experience, and he has written at length on exactly what they had to do on Business Insider.  The whole post is well worth a read.  I’m going to bring out three highlights.

First the stats – they had to talk to a LOT of people:

We had 515 contacts, of this, roughly 250 passed for various reasons and 100 were non-responsive. We had 154 visits, 97 due diligence requests, 33 second visits, and 12 reference requests, to ultimately produce 9 institutional investors. 

That’s less than a 2% yield of all contacts and 6% of first meetings.

Second – the lack of courtesy shown by potential investors:

During the process, however, we learned a lot about various institutions and how they treat supplicants like us.  Some of the highlights that immediately come to mind: courtesy on call backs in a time frame they set but don’t observe, due diligence processes which promise a month or two and take almost a year, people who invite you to full committee presentations and only one person shows up after you take two days and travel over 1,000 miles to get there in a rainstorm.  And these are just a few of the examples.

And finally the wasted effort:

Two groups in particular went through extensive due diligence including:  independent credit checks on each of us, negotiating the LP agreement, requesting a seat on our advisory board, and finally getting us through their investment committees.  After all of that, they confessed that they were out of funds and were in the market raising their own fund of funds; this after countless meetings at their offices, calls to every one of our CEO’s, co-investors and personal references.

As Alan says towards the end of his post, going through this sort of humbling experience should make VCs more aware of their own treatment and response to entrepreneurs.

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  • Illuminiating.

    On last point, yes, but the empathy should cut both ways. Easy to spend the stuff, esp if young, without realising how difficult it is to make/raise it.

  • You may be a construction worker working on a home
    You may be living in a mansion or you might live in a dome
    You might own guns and you might even own tanks
    You might be somebody’s landlord, you might even own banks

    But you’re gonna have to serve somebody, yes indeed
    You’re gonna have to serve somebody
    Well, it may be the devil or it may be the Lord
    But you’re gonna have to serve somebody

    Excerpt from “Gotta serve somebody” – Bob Dylan

  • True enough David. True enough.