Similarities between raising a venture fund and raising for a startup

It’s becoming a cliché that read raising for a VC fund is like raising for a startup. I know this because fur much of this year I’ve been on the road for Forward Partners and when I tell entrepreneurs what it’s like they smile, give me a knowing nod like we’re insiders together, and say “it’s just like raising for a startup”.

The basic similarities are lots of meetings, unpredictable processes, lots of wasted time, and a feeling that there really ought to be a better way.

I’m at the Super Investor conference in Amsterdam, which is the main event each year when private equity and venture capital fund managers and their investors (Limited Partners out LPs) get together. At the Fundraising Summit yesterday LPs repeatedly made the following points which really cemented the point:

  • LPs receive around 400 fund pitches per year and invest in 8-10. Comparable numbers at VC funds are 1,000 pitches for a around 10 investments (Forward Partners will have received a little over 2,000 pitches this year and will have made 6-7 new investments).
  • A major complaint from fund managers is that LPs don’t reply to their emails and let them know how their investment case is progressing. Forward thinking LPs are saying they understand this and work hard to get a quick ‘no’ to funds they aren’t going to back. Entrepreneurs say the same.
  • Like top startups, the top funds have it easy. LPs all want to invest in them, their fundraising processes are short, and they can command good terms.
  • Other funds find it much more difficult, with fundraising taking 15-18 months, which is 5-10x as long as it takes the top funds.
  • LPs are working hard to differentiate themselves so they can get into the best funds.
  • Relationships are important, and they want to invest in managers they trust.
  • LPs are starting to advise find managers on what to put on their investment decks and how to present themselves generally.

Those are the similarities. One of the big differences if that LPs benefit less than VCs when they are innovative and take risks with new funds. That makes it harder to be a startup fund and harder to get traction with new VC models.