Fundraising: Founders & VCs are in the Same Boat

Many founders are curious about what it’s like to raise a VC fund.  They want to know how it compares to their experience raising capital, and I think there’s a bit of satisfaction knowing that VCs have to go through it too!
​By, Aaron Stachel

Every founder who’s raised a round knows the grind of countless meetings, lots of “no’s”, getting ghosted, and the challenge of convincing investors to believe in a vision that’s still unfolding. But here’s the thing: raising a venture fund as an emerging manager isn’t all that different. As VCs, we’re pitching LPs, trying to stand out in a crowded market, articulating why our strategy will deliver outsized returns, and demonstrating we have the team and track record to execute. 
There are a few key similarities:

• Finding your people is the key. Just like VCs are getting pitched constantly and looking for the needle in the haystack, LPs have no shortage of managers looking to help them get a return on their capital. Everyone hears “no” a lot, you must keep going until you find the people that believe in what you’re doing.
  
• Relationships matter. First, both founders and VCs increase their chance of getting a meeting greatly if leveraging a warm intro.  Also, a typical venture fund life is 10+ years, and the average time for a startup to exit is 7+ years.  Building the relationship ahead of signing the deal is essential for ensuring you have the right long-term partners.
  
• Fundraising is existential. If a startup with a burn rate doesn’t close their next funding, it will soon go out of business or find a soft landing at an acquirer. VCs can collect fees for the length of their last fund, so it’s more of a slow death as the fee income tapers off, but the firm must earn its right to exist on each fund.
  

The biggest differences:

• Raising a fund takes much longer. Typically, a startup can raise capital from a handful of firms in 3-6 months and be done for 18-24 months until the next round. A fund manager can be in the market for 1-2 years while they raise from up to 100 LPs.
  
• Limited Partners are harder to find. Most VCs are actively building their brand and trying to stand out in a competitive market. Getting deal flow is the lifeblood of their business. On the other hand, the wealthy families that back emerging funds often don’t want to be found and the last thing they need is yet another investment opportunity. 
  
• GP Pipelines vs Startup Pipelines. Most LPs we pitch - family offices and high net worths - do not actively manage a “fund pipeline.”  Most VC’s are managing their pipeline of investment opportunities everyday, and we try to let founders know our decision as soon as possible. LPs, on the other hand, often prefer to build a relationship over time and may not make a decision until they have to at the final close. 
  

It should be somewhat reassuring to founders that VCs are facing some of the same challenges as you, and it makes me redouble my efforts to have empathy for founders and be respectful of their time in our process.  Fundraising really is a full-time job on top of running your business or firm, and it’s tough to do both well at the same time.