13 Tips for Starting a Venture Capital Fund

At the recent VC roundtable, “Current Trends of a Successful Venture Capital Fund Launch,” hosted at EisnerAmper’s San Francisco office, service providers and VC fund managers discussed the changing face of venture capital and how to position a fund launch for both short- and long-term success. Speakers included Clint Nyberg from Standish Management, Sean Caplice from Gunderson Dettmer, and Timothy Goodwin from Greyline. Here are a baker’s dozen tips to help emerging and pre-launch fund managers:

Get Started

• Meet with an attorney (who is experienced in the VC sector) early in the formation process. They will help guide you on structuring and legally marketing your fund.
• Secure a fund administrator who can handle pre-launch processes and establishing bank accounts before your first capital call.
• Engage an audit and tax firm early on. They will help review legal documents and offer valuation guidance. They can also advise on fund tax structure and review deals to minimize tax exposure, such as Qualified Small Business Stock and R&D credits.
• Obtain insurance for the management company and the fund.
• Focus on compliance once you initiate fundraising to ensure you follow the ever-changing advertising rules as well as maintain exemption status.

Structure Your Fund

• Keep it simple. There’s no need to recreate the wheel unless there is a compelling reason for tax or regulatory issues. A simpler structure makes it easier to operate your business and make decisions going forward.
• Bells and whistles don’t always add value and can be a marketing distraction.
• Your partnership agreement can include provisions allowing you to add other entities later. Don’t feel like you need an initial structure that covers every possible scenario.
• Be prepared to negotiate fee structures with potential investors.

Avoid These Mistakes

• Not having proper cybersecurity in place. As hackers get more sophisticated, you want to stay a step or two ahead and have proactive processes to protect your information and wire transactions.
• Not knowing who you can market to, who can invest in your fund, and how many investors can be in your fund.
• Not finding a qualified or committed CFO who will take ownership of the finance role and who understands the partnership agreement and allocation process. Outsourcing this role is one option for emerging managers.
• Overspending on unnecessary overhead.

Due to the many regulations, complexities and unique circumstances that surround each fund, it is always prudent to consult with your trusted business advisor as early in the process as possible.