The time required to raise a fund is critical, particularly for emerging managers. Time dedicated to raising a fund means time away from deploying capital into promising ventures. For some it also means a period of very tight cashflow, especially if you’re raising a fund for the first time (no management fees from prior funds) and doing it full-time (no time spent earning or generating cashflow from other sources).
An example of a fast fundraise, Homebrew, led by Hunter Walk, former Google and Twitter product manager, and Satya Patel, former Battery Ventures investor and Twitter and Google executive, raised its first fund in 100 days from start to close.
The partners of Hustle Fund raised their first fund in just under a year, prioritizing speed over check size in their fundraising strategy.
The industry average for raising a fund is 18 months as noted in First Republic’s 2018 survey of emerging managers. On the topic of fundraising duration, some other interesting findings from the survey are as follows:
- Multiple GP funds take a bit longer to raise their funds compared to single GP funds, but they raise bigger funds ($41M on average vs. $25M).
- Diverse teams raised larger funds and took less time to raise on average.
- Previous experience didn’t necessarily shorten fundraising duration. This is contrary to what I would have assumed. I would have thought previous experience meant more potential investors in your network which could lead to a faster fundraise. In fact it took more than 2 months longer for managers with previous experience to raise compared to first-time managers, however they raised larger funds and raised more per partner on average.
I’m curious what the range of fundraising durations is. Whilst the industry average, as noted above is 18 months, anecdotally, people often advised me it could take upwards of 2 years to raise a first fund.
There’s no doubt that raising a fund takes time. During the fundraising period, a myriad of activities must take place including:
- Preparing marketing materials,
- Drafting investor and fund management terms,
- Contacting investors for first meetings or seeking referrals, and
- Second and subsequent meetings that do not eventually convert into an investment.
A critical activity that takes time is investor due diligence. 2019 First Republic survey found that almost 80% of funds surveyed experienced due diligence durations longer than 3 months.
I am curious about other factors and want to know whether or how they affect fundraising duration, such as:
- Breadth, depth and quality of network of investors: If you have 1st degree connections to enough investors to form your fund, does that tend towards significantly shorter fundraising durations?
- Product-market fit (thesis-investor fit) and ease of explaining/understanding thesis: Iif you don’t have a large network of investors already, but you have strong product-market fit does it make it easier to network your way to investors (reducing the impact of not having an existing network of investors at your fingertips)?
- Timing: Are there occasions when investors are very attracted to venture capital and new managers (i.e. exiting other asset classes, see the risk-adjusted returns in VC to be very favourable) and therefore fundraising durations for all emerging managers would tend to be shorter?
In the meantime, the key takeaways for first time managers:
- Take time to build relationships: Allow plenty of time for due diligence, especially as a new manager and if you’re forming new relationships with investors.
- Stick with it. Prior experience tends towards larger funds.
- Strength in numbers. Forming a team and having multiple GPs tends towards larger funds.
- Diversity advantage: Diverse teams raised larger funds and took less time to raise on average.
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About Pique Ventures
Pique Ventures is an impact investment and management company. Pique Ventures enables a diverse community of investors to pursue integrated investing. Integrated Investing is a proprietary investment decision-making methodology to help create a better world and was developed specifically to evaluate impact and early-stage ventures.