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Venture Capital

How to raise your first fund as an emerging fund manager

Fund managers get better fundraising results when they can show LPs proof of success. Here's how emerging managers can build trust before you can show success metrics.

Fund managers build funds by gaining trust from LPs — but how do you gain trust before you can show success metrics?

Emerging fund managers face a catch-22. They need a good track record to build trust with limited partners, but they need limited partners to join their fund to build a good track record.

Fundraising is easiest when you can show LPs proof of success: multiple on invested capital (MOIC), internal rate of return (IRR), etc. But what’s an emerging fund manager to do when they can’t yet show a return on investment?

Ever since I started my own journey in venture I was interested in learning how others did it. So I decided to speak with someone who’s living the early days of venture capital right now and get a fresh perspective on what the secrets are to raise a fund. With this in mind, I interviewed Paige Doherty, founding partner at Behind Genius, an emerging pre-seed/seed firm that raised a first fund of $1.6 million in 2021.

You may know Paige from her Twitter account or her podcast, Seed to Harvest. Fresh off her first fund and currently raising her second, Paige shares how she gained momentum before there was any momentum to begin with.

Where to start when you’re starting a VC fund from scratch

That first check needs to come from somewhere. But what if you didn’t grow up in Silicon Valley and don’t have access to a personal network that can write you that first check? Here are some tips from Paige:

1. Become a content creator

For Gen Z, content creation and network building go hand-in-hand. Content creation is just as much a part of Paige’s VC journey as fundraising, and it’s through creating content for her podcast and on Twitter that she’s been able to demonstrate her expertise to potential LPs.

“I run a podcast called Seed to Harvest, which has around a million monthly impressions,” says Paige. “That’s the platform I’ve built to share our founder stories and showcase a unique perspective. I’m one of the youngest GPs out there, if not the youngest. That gives me first-hand experience of upcoming trends, and I have a platform to showcase that.”

2. Build and leverage a Twitter audience

Remote work has brought challenges to fundraising, but the freedom to raise capital over social media and Zoom has unlocked new potential for emerging fund managers. Having established her fund in 2021, Paige built her network primarily on Twitter, where more than 30,000 people — including operators, investors, founders, and journalists — know who she is and what she wants to build with her fund.

“Honestly, the majority of our investors were people I met through Twitter, which is pretty cool,” Paige says. “I used a tool called Clay that allowed me to pull metadata from people’s Twitter profiles and see what they were tweeting about, and that’s how I built my outreach list.”

3. Invest in PR — it might surprise you

When Paige met a founder while on a study abroad trip to Rome, she asked him a ton of questions about his work during their field trips. After the trip, they connected on LinkedIn, where the founder saw an article about Paige in the San Diego Tribune and reached out about participating in her fund.

Because of that same article, the CIO of BlackRock cold-emailed her. “I literally thought it was a scam,” Paige says, “but lo and behold, it was real. So I think there’s a combination of inbound and outbound at play.”

4. Focus on getting referrals

Emerging fund managers who may not be able to rely on their network for investments can lean on them for referrals instead.

For Paige, referrals are a foundational part of her fund. “[For LPs],” Paige says, “a standard part of the diligence process is to get a referral from someone they deeply trust or enjoy co-investing with. So I try to look at my network and determine who has the strongest relationship to a potential LP, based on the folks I have in my circle.”

How to know you’re a good fund manager before knowing you’re a good fund manager

The thing about being a fund manager is that you don’t know whether you’re good at it for several years. It can take seven to ten years for your initial investment to deliver substantial returns for your LPs … so how can you measure success for yourself in the meantime?

At first, Paige says you won’t be using an internal rate of return (IRR) to measure success. “Behind Genius started investing in 2021, so calculating IRR right now isn’t feasible,” she says. “I come from a growth equity background, and it was drilled into my head that you don’t calculate IRR until you’re at least three years into a fund cycle. So when I’m asked about IRR, I say I’ll get back to them in a couple years about that!”

Here are some other success signals to watch out for in the meantime:

1. Distributions to paid in capital

Multiple on invested capital (MOIC) is an obvious success metric, but Paige says your cash-on-cash return is the most important metric in venture.

“To take a phrase from some of our investors,” Paige says, “you got to have the moolah in the coolah. That’s what really matters at the end of the day, so that’s why institutional excellence is so important to us. I always think about things like qualified small business stock (QSBS) and tax-advantageous investments, because what really matters is the amount of cash you return at the end of the fund lifecycle.”

2. Portfolio founders invest in your next fund

Paige says that when portfolio founders invest in your next fund, that’s definitely a good sign about their belief in you and the value you’ve added so far. When you can also get referrals from founders, that’s another signal to LPs that you know what you’re doing and can be trusted.

3. Your portfolio companies raise additional funding

Paige says, “A good sign is you’ll get markups on a SAFE note. Behind Genius has 12 out of 30 companies from our first fund that raised additional financing.”

And whether people want to admit it or not, co-investors on those additional rounds matter. “Looking at the co-investors who are leading that next round is something that LPs consider, and it’s helped that rounds after ours have been led by 776 and Craft Ventures.”

Final advice: Take care of yourself as an emerging fund manager

Paige wants to remind all fund managers that fundraising is hard. Throughout the first few years of the process, make sure to:

  1. Accept that fundraising is an emotionally grueling process of self-discovery
  2. Take care of yourself: eat well, sleep well, exercise
  3. Make sure you have a strong support system for when times are tough

Find out how DocSend can make life easier as an emerging fund manager. Use DocSend to narrow down potential LP interest and run an efficient fundraising process.