Apr 4, 2023

The Essential Tips for Running a Successful Venture Capital Fund as an Emerging Manager

Do you know what Tiger Woods, Serena Williams, Kobe Bryant, and Beyonce all have in common? Besides leaving the world astonished by their individual excellence in their chosen fields, each of them always "came prepared."

There's no substitute for training and preparation, even in business. So if you want to be a successful venture fund manager and you feel like an underdog, keep reading.

We published this post for you.

Launching a venture capital fund can be daunting for an emerging manager.

With increasing market competition and venture funds' complexity, figuring out where to start can take time. That's why it's critical to enter the game prepared.

If you're considering becoming a VC, this article will provide essential tips for running a successful venture capital fund as an emerging manager.

Here's an overview of what we'll cover:

  • Launching a fund and the details you need to pay attention to,
  • How to source for the right investors and startups,
  • Common mistakes to avoid,
  • Critical ingredients that will position you to launch a successful venture capital firm.

Following the tips outlined in this post and adopting the right strategies can make your venture capital fund successful.

Related Resource: 4 Questions to ask yourself before building a founder community for your portfolio

Venture Capital and how it Works

Venture capital is financing that investors provide to fund a new or existing business through venture capital firms. It is typically offered in the form of equity and is used to help start-up companies grow and develop.

In exchange for their investment, venture capitalists usually receive a percentage of the company's equity. They may also receive preferential treatment in the event of a sale or initial public offering (IPO).

Venture capital investments are typically offered to businesses with high potential for growth and profitability. Companies can receive significant venture capital depending on their needs, business plans, goals, and strategies. Venture capitalists and venture firms are typically looking for businesses with a track record of success, a strong management team, and the potential for high returns on their investment.

In addition to providing capital, venture capitalists often continuously advise and support their portfolio companies.

In recent years, venture firms that offer more formalized post-investment support are creating greater value for their portfolio companies by giving access to resources such as industry contacts, partners, and potentially other partners and customers.

Venture capitalists may also be involved in decision-making, offering their opinion on crucial business decisions.

Different Types of Venture Capital

There are several different types of venture capital, each of which is designed to meet different needs. Each type of venture capital has pros and cons, so it is important to understand their differences to help inform both the vision of your venture capital firm and the niche you'll choose to specialize in as you grow.

  1. Seed Capital: Seed capital is the initial capital used to start a business. It is usually provided by angel investors, venture capitalists, or other private investors. This capital is typically used for research and development, hiring, and other startup costs.
  2. Startup Capital: Startup capital is the money used to fund the early stages of a business. It is typically used to pay for marketing, legal fees, product development, and other operational expenses associated with launching a business.
  3. Early Stage Capital: Early stage capital is typically used to fund the growth of a business in its early stages. This capital is used to finance new product development, hire additional staff, and expand into new markets.
  4. Expansion Capital: Expansion capital is used to finance the expansion of an existing business. This type of capital is usually used to acquire new equipment, hire additional staff, or expand into new markets.
  5. Late-Stage Capital: Late-stage capital is used to finance the growth of an established business. This type of capital is typically used to invest in technology, marketing, and other areas that will help the business reach its full potential.
  6. Bridge Financing: Bridge financing provides businesses with short-term capital to help them meet their working capital needs. This type of financing is often used to bridge the gap between when a business needs funds and when it can secure more permanent financing.

Why now is the right time for emerging fund managers to take the lead

Private Equity International wrote, "Many LPs-in the US especially- have established emerging manager programmes dedicated to finding new talent in the industry, and some have further formalized such programmes. Part of the attraction for LPs is the prospect of higher returns than with established managers - several studies have suggested the hunger felt by emerging managers has the potential to deliver outperformance, although they also find that dispersion is higher than for existing firms."

What this means for you is that despite the harsh and difficult conditions of being a first-time VC fund manager, the opportunity is ripe and ready. You must get your strategy right to launch this early-stage venture fund.

Process of Launching a Fund

Launching a venture capital fund is a complex process that requires careful planning and execution. Your VC fund must be structured to meet your investment goals, desirable to your LPs, and compliant with relevant regulations and laws.

The first step in launching a venture capital fund is to create a detailed strategy.

This should include your target market, detailed investment strategy, investor pitch deck, a strategy for networking and sourcing investors, and a fund launch timeline.

You should also consider the new fund's legal structure, such as whether it will be a limited partnership, limited liability company, or another system.

Once you have a plan, you must develop a fundraising strategy to generate capital for the fund. This could include pitching the fund to potential investors or soliciting investments from family, friends, third-party investors, and high-net-worth individuals.

You also need to develop a detailed analysis of each startup you'll want to invest in and the highly specific business case of potential and associated risks.

The fundraising and pitch season is daunting for many emerging fund managers, so do your best to find support and mentorship. That way, you can survive the first launch phase without losing your sanity and still have enough strength to manage the fund.

Part of managing a new fund involves thinking like an entrepreneur. You need to be a team player and a team leader. Your relationships with both the startups and the investors need constant nurturing, and your vision for the firm must remain clear.

The end goal promised to your Limited Partners is your responsibility, and it's upon you to align yourself with a team that will enable you to stay on top of your game and protect your firm's reputation.

Finally, you must ensure your strategy includes a strong exit plan. Every investor wants to know how they stand to benefit from their investment long before they hand over their money. This could include selling the assets to another venture capital fund, partner, or strategic investor or going for an IPO.

Managing a Fund

Managing an entire fund for the first time will come with some sleepless nights, and that's okay. Like any new endeavor, operational efficiency is critical yet hard to execute. So you must bring your A-game and nurture a great team to ensure the fund meets its objectives.

But if you do a great job with your strategy and pick the right team, running a successful fund and building a track record will be inevitable.

Some of the core questions you need to answer as the fund managers include the following:

  • Is my vision big enough to inspire my team to go all in?
  • Does the story of my fund and the team attract the right investors?
  • How clear and appealing is my fund strategy?
  • Are our specific goals and objectives clear and measurable?
  • Do we have the right team in place to achieve these goals within the established timelines?
  • Have I identified the right target market and niche for my investment fund?
  • What is the risk profile of the startups I want to work with?

Performance is everything in the venture capital industry. You'll need to constantly monitor your team's performance, portfolio companies, and the markets, measuring them against your goals and adjusting as needed.

It is also important to assess the risk associated with each investment to ensure that the fund is not taking on too much risk.

Common Mistakes to Avoid in Launching and Managing a Fund

If venture capital has been your dream for a really long time, and you're just now getting to the point of hanging your hat and declaring to the world that you deserve a shot at running your own firm, it's both scary and exhilarating. Emotions run wild, and each day feels like a battle with crazy highs and lows.

In such an environment, mistakes are plentiful. Some decisions work out great; others can land you in the gutter. Managing your mental state is perhaps one of the most important things you can do as an emerging fund manager because the calmer and more focused you are, the easier it will be to either spot or avoid many (at least) some of the rookie mistakes young VCs tend to make.

Here are our top picks to avoid:

1) Poor due diligence:

Due diligence is one thing that separates mediocre fund managers from those with long careers. Without extensive research, you're making uninformed decisions that could potentially cost you millions and ruin your fund's credibility.

Never take shortcuts or skim over any research or due diligence at any point of your career if you want to succeed as a fund manager. Do your best to learn as much as possible about the investor, the market, the startup, and the team member you're looking to engage in any business activity.

2) An unclear fund strategy:

A smart person once said that failing to prepare is preparing to fail. They were spot on. A clear plan for your fund is essential for success. You must take the time to develop a detailed and clear plan for every aspect of your fund's launch and management. Begin with the end in mind and reverse engineer the process to cover the company's vision, objectives, investment strategy, target market, how you'll evaluate startups, and the timeline for achieving those goals. You must also document the investor strategy that you'll use to source, build relationships with, and pitch to ideal limited partners.

3) The wrong team:

The venture capital game is a team sport. You cannot do this on your own. And there is such a thing as the right or wrong team. The former will become a source of stress and hindrance, and the latter will accelerate your growth and success as an emerging manager.

Having the right team in place is vital to running a successful fund.

You must have qualified professionals who are knowledgeable and experienced in the industry and target sector you will invest in. They need to be reliable advisors to help guide you through this process.

Most fund managers wait until they are ready to launch before protecting their A-team. We recommend starting now to network, build relationships and align with potential team members so you can be ready when it's time to make a move.

4) Picking the wrong management fees structure:

Fees are essential to running a successful venture capital fund, and it is crucial to figure out the best fee structure that will be fair to all parties. Decide early on what fees you'll charge and how they will be allocated.

Opting for the wrong fee structure can lead to costly mistakes and significantly affect the fund's performance.

Ensure the numbers work in your favor and not just what investors will find attractive. Get creative with how you structure your compensation so that the fund doesn't collapse a few months or years into the game.

5) Not diversifying investments:

Putting all your eggs in one basket isn't recommended in venture capital because, chances are, most of your startups won't turn into unicorns.

Diversification is one of the great secrets established VCs use to win. By diversification, we mean mixing different types of investment into a single portfolio. It's one of the best ways to hedge your fund against risk.

By owning investments that react differently to various market conditions, the overall risk of your portfolio decreases and gives a bit of a safety net to your Limited partnerships, not to mention your own sanity.

The bottom line is that your portfolio and pitch will be stronger if you include your approach to diversification and how you're implementing it.

Key Ingredients for Success

Thriving venture capital (VC) funds are built on a foundation of critical ingredients that enable investors and fund managers to make sound decisions and drive attractive returns. The essential elements for the success of a venture capital fund include:

  • A strong team.
  • A long-term investment strategy.
  • Appropriate capital structures.
  • Experienced investors.
  • A clear focus on the industry or sector.

The team:

A solid and experienced team is essential for the success of a venture capital fund. The team should have a proven track record, in-depth knowledge of the venture capital industry and its trends, and the ability to assess the investment opportunities and risks of potential investments.

Additionally, the team should possess the skills to identify, evaluate, and negotiate investments specializing in the niche market you want your fund to become known for.

The long-term fund strategy:

A long-term investment strategy is also critical to success. Your VC fund should clearly define its target companies and industries and how it will achieve its desired returns. This strategy should be tailored to the fund's strengths, resources, and goals. It should also outline the structure and internal management of the fund.

A clear focus on the target sector or industry:

Your fund strategy should focus on a specific industry or sector. Experts in the subject matter view a sector-specific mindset as a strength, especially in today's market. You may want to pick your chosen industry or sector based on various factors, including your past experience, former training, the location of your legal fund structure, or a combination of all these variables. The most important thing to remember is that any industry or sector can be a great choice for your fund as long as you're playing to your strengths and long-term investment objectives.

The Capital Structure and Allocation:

The capital structure of your venture capital fund is also important because investors will need to see this. LPs need reassurance that you know how to manage their money. The more detailed you can show the inflow and outflow of their investments, the higher the chances of getting buy-in.

Aim to have the right balance of debt and equity to make sound investments and maximize returns. Additionally, the venture capital funds' structure should allow the fund to take on different levels of risk.

Experienced investors who share your vision:

You don't just want to get any investor as your LP; you need the right investor who shares your vision and will be willing to walk the journey. The more experienced the investor, the calmer they will be during the stormy seasons. But even if you go for LPs without prior experience, it would help if they deeply understood how investing works. The more knowledgeable they are, the easier it will be to manage those relationships until harvest season. Trust is also critical to develop in your relationship, so make sure you're bringing on people you are willing to go out of your way to maintain strong relationships with.

How to Manage Investor Relationships

As an emerging fund manager, handling investor relationships are part of the job description. And while some might only view investor relations as transactional, we encourage you to see far beyond the fundraising and quarterly board meetings because then you can access often missed opportunities.

Trust is one of the building blocks of a successful LP and GP relationship, but it won't happen overnight. So here are some tips to help you build trust and genuine connection that stands the storms of VC investing.

1. Establish Clear Communication:

As with any relationship, communication with your investors is essential to building trust and creating a positive relationship.

Communicate regularly, be transparent about your progress, and keep your investors updated on any changes or developments in your venture. While every founder will have different preferences, we recommend these three touchpoints as a baseline:

  • Regular one-off calls and conversations
  • Monthly reports and investor updates via email
  • Quarterly board meetings in person or via zoom

2. Show Appreciation:

Your investors are an important part of the success of your venture, so periodically show your appreciation. Demonstrate your gratitude and find thoughtful ways to thank them for their investment. It doesn't need to be a grand gesture, so it doesn't make money or time an obstacle. Focus on showing you're human rather than showing off.

3. Be Proactive:

It's important to be proactive when it comes to managing investor relationships. Be sure to contact your investors regularly to ask for their input and feedback. This will help you avoid potential issues and build a stronger relationship with your investors. It's also a great way to make them feel valued above and beyond their contribution.


Venture capital is one of the most fierce spaces to play in, yet it can be extremely rewarding. For an emerging fund manager, the path to building a track record and growing a thriving VC firm can be nearly impossible. With so many different challenges and variables to account for, it is easy to feel overwhelmed. But if it's in your heart to make a run for it sooner rather than later, trust that with the right attitude, a great team, plenty of preparation, and a solid strategy, you, too, can become your own success story.

Venture capital investing is not rocket science; if others have walked this path before you, so can you. Keep increasing your knowledge of the industry, how things work, what to avoid, how to build strong relationships, and which strategy and fund structure to develop.

Find any and all opportunities to gain as much experience as possible and form solid relationships with the different members you will need to execute your dream. Don't wait until you're completely ready to launch. Start today where you are by doing small things that help prepare you for that big move.

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Written by
Philip McNamara
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