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How to raise capital for a VC fund – Q&A with a VC

Our Q&A with a notable investor on what it's like to raise money for an investment fund, announcing Ladies Who Launch webinar, and PDI metrics update.

This week’s Startup Index Newsletter features a Q&A with an investor on what it’s like to raise money for an investment fund. We also give you an update on the health of the fundraising marketplace as tracked by our Pitch Deck Interest Metrics, recommended reads, and the upcoming Ladies Who Launch webinar.

Anonymous Investor at Anonymous Capital
These are the responses from an investor at a notable investment fund. Their team preferred to remain anonymous, but the insights are still valuable.

What is your general process for raising a VC fund? How long does it take?

Usually, we’re talking with existing LPs on a regular basis. Depending on the firm, a few quarters or months before we go out to fundraise, we give our LPs (Limited Partners) a heads-up on the upcoming fundraise. We prepare materials from fund presentations in our data room where we interact for the LPs’ due diligence. Once VCs kick off the official fundraise, the whole process can go on from a few weeks to months to finalize, but this also depends on which fund you’re raising. In general, new funds take longer to raise than established funds with a proven track record.

How does raising a fund now compare to raising a fund pre-pandemic? What are some of the challenges?

Pre-pandemic, a big part of fundraising meant in-person meetings with the new and existing LPs with team members either at their office or ours. Those in-person meetings have changed to virtual video conference calls over Zoom or Google Meet videos, just like any other pitch meetings. Video conference calls have some challenges with building rapport, body language, cultural/language barriers (with international LPs), but people got used to it. Just like any other video meetings, it’s both good and bad. The good part is the coordination and saving time/energy from traveling. The bad part is the inherent difficulty in intimate conversations and interactions over video.

Early in the pandemic, fundraising was challenging for everyone, both for founders and GPs. Everyone was figuring out the non-physical meeting strategy. Moreover, with the tumultuous public market condition in March-April, a good chunk of institutional LPs with public market exposure pulled back from being active in deploying capital due to the market uncertainty. Some LPs decided to wait out the volatile market while also triaging the public market portfolios.

In the startup fundraising process, most founders get a “no” from investors, is that something investors hear, too? What are some challenges for newer investment funds?

Yes, very much so. It’s more common to hear no, especially for younger funds where the reputation, brand, and LP base are slim. However, as the firm goes through a few fundraising processes with multiple successful funds in the past, a good chunk of the fund is invested by existing LPs, which makes everything easier. Think of extremely supportive insider rounds for hottest startups where the company doesn’t go out to meet all the VCs in town to get the round done. However, the new LPs may have difficult times committing to relatively established funds, either for their own internal issues, or check sizes, misaligned investment strategy, etc. Most institutional LPs don’t have to deploy their capital as actively as most early-stage VC funds. All they need is a few GPs to commit to every year, if at all.

What an average fund looks like

VCs spend on average 31 weeks raising their funds


*This data was collected for our report “The New Rules of VC Fundraising”. Releasing soon.

Pitch Deck Interest Metrics Update

Our data from last week shows that investor interest slightly declined and remains 31.69% higher than the same week in 2019. Share this on Twitter.

Read our full analysis of last week’s changes in the fundraising marketplace.

Recommended Reads

How 500 Startups Streamlined Their Fundraising Process

We did a deep-dive with Sheel Mohnot, former Partner at 500 Startups, to understand the challenges they faced in raising capital and how DocSend helped them build a better process. In Sheel’s own words, “DocSend has proven extremely valuable for our internal processes. We now encourage our startups to use DocSend, for fundraising as well as for their sales teams.”

Read the full story on our blog.

Venture Unlocked Episode 1: Elizabeth Yin, Hustle Fund

Samir Kaji of First Republic Bank interviews Elizabeth Yin, General Partner at Hustle Fund, to uncover what it was like for her and her co-founder to raise their first fund, the role of brand in venture, how to efficiently manage a firm and much more.

Listen to the full episode of Venture Unlocked.

The Funding Divide: What women entrepreneurs need to know when pitching investors (webinar)

Sarah Friar, CEO of Nextdoor and co-founder of Ladies Who Launch, will be moderating a conversation with Nikki Dominguez and April Dominguez of Handshake, along with Andrea Silvers of DocSend for a very real and data-driven discussion on The Funding Divide. RSVP for the event on October 6th at 12pm PT.

Register for the event on Eventbrite.

Are you raising your pre-Seed or Seed round?

Founders, join the DocSend Fundraising Network for complimentary, data-driven pitch deck analysis and warm intros to VC, based on our quality bar and matching criteria. Lead early-stage VCs can apply to receive intros to startups in the program.