The Business of Venture Capital, 3rd Edition

17Raising Your First Fund

Among the various exotic forms of self-flagellation, raising the debut venture fund is high up on the torture scale. One VC described a fund raise as “crawling on all fours” and then he paused for effect “…on a steep uphill crawl” and finally topped it off with “…sprinkled with some broken glass.” So if you can smile cheerfully, while crawling uphill, on broken glass, and live without a paycheck for two years, while investing your life savings in illiquid high-risk startups — this chapter is for you.

Financially, emotionally, or intellectually, the fundraising journey will test your timbre and mettle in every possible way — it does not get any worse. But if you can make it across the finish line, you can rest for a day. And then start the real work — multiply the capital by 3X in five years. Lindel Eakman manages fund investments for Foundry Group and has been investing in venture funds for 15 years. “My first question to anyone getting ready to raise their first fund is — are you sure you want to do this?” he asks. And my second question is, “Have you made enough money to risk two years of your life without any current income — to withstand this journey?” Indeed, as romantic and cool of a career as it may appear from the outside, the opportunity cost of raising a fund can be very high.

FIRST STEPS

To start with, a fund's investment strategy addresses these basic questions:

1. Where do you see untapped opportunities for investments?
2. Why are you best ...