20VC: The Memo: How to Raise a Venture Capital Fund (Part I) | The Core Lessons from Raising $400M Over The Last Four Years| The Biggest Mistakes VCs Make When Fundraising | How To Find and Build Relationships with New LPs

How To Raise a Venture Capital Fund Over the last 4 years, I have raised around $400M across different vehicles from many different types of investors. Today I am going to break down the early stages of how to raise a venture capital fund and then stay tuned for a follow-up to this where we will break down a fundraising deck for a fund, what to do, what not to do etc. But to the first element. Your Fund Size is Your Strategy: The most important decision you will make is the size of fund you raise. So much of your strategy and approach will change according to your fund size target (LP type, messaging, documentation, structure etc). Remember, your fund size is your strategy. If you are raising a $10M Fund, you are likely writing collaborative checks alongside a follower, if you are raising a $75M fund, you will likely be leading early-stage seed rounds. These are very different strategies and ways of investing. MISTAKE: The single biggest mistake I see fund managers make is they go out to fundraise with too high a target fundraise. One of the most important elements in raising for a fund is creating the feeling of momentum in your raise. The more of the fund you have raised and the speed with which you have raised those funds dictate that momentum. So the smaller the fund, the easier it is to create that heat and momentum in your raise. LESSON: Figure out your minimum viable fund size (MVFS). Do this by examining your portfolio construction. In other words, how many investments you want to make in the fund (the level of diversification) and then alongside that, the average check size you would like to invest in each company. Many people forget to discount the fees when doing this math and so the traditional fund will charge 2% fees per year and so across the life of the fund (usually 10 years), that is 20% of the fund allocated to fees. Example: We are raising a $10M Fund. 20% is allocated to fees for the manager and so we are left with $8M of investable capital. A good level of diversification for an early-stage fund is 30 companies and so with this fund size, I would recommend 32 investments with an average of $250K per company. That is the $8M in invested capital. Big tip, I often see managers raising a seed fund and are only planning to make 15 investments, this is simply not enough. You have to have enough diversification in the portfolio if you are at the seed stage. No one is that good a picker. Likewise, I sometimes see 100 or even 200 investments per fund, this is the spray-and-pray approach, and although works for some, your upside is inherently capped when you run the maths on fund sizes with this many investments. A big element to point out in this example is we have left no allocation for reserves. For those that do not know, reserves are the dollars you set aside to re-invest in existing portfolio companies. Different funds reserve different amounts, on the low end there is 0% reserves and on the high end some even have 70% of the fund reserved for follow-on rounds. In this example, given the size of the fund being $10M with a seed focus, I would recommend we have a no-reserves policy. Any breakout companies you can take to LPs and create SPVs to concentrate further capital into the company. This is also better for you as the manager as you then have deal by deal carry on the SPVs that are not tied to the performance of the entire fund. So now we know we know $10M is our MVFS as we want to make at least 30 investments and we want to invest at least $250K per company. Great, next step. Set a target that is on the lower end, you can always have a hard cap that is significantly higher but you do not want the target to be too far away that LPs question whether you will be able to raise the fund at all. This is one of the biggest reasons why many do not invest in a first time fund, they are unsure whether the fund will be raised at all. The Team: Alongside the size of the fund, the team composition is everything, simply put, LPs like managers who have invested in the stage you are wanting to invest in moving forward. They like to see track record. IMPORTANT: I see so many angels write checks into breakout Series B companies and then go out and try and raise a seed fund with this as their track record. Do not do this, this does not prove you are a good seed investor but merely shows you have access at the Series B. These are very different things. With regards to track record, in the past, TVPI or paper mark-ups were enough, now there is a much greater focus on DPI (returned capital to investors). LPs want to see that you have invested before at that stage and they also want to see that the team has worked together before. You want to remove the barriers to no. If you have not worked with the partners you are raising with before, LPs will have this as a red flag, and as team risk, it is that simple. Navigating the World of LPs (Limited Partners) The size of the fund you are raising will massively dictate the type of LPs that will invest in your fund. MISTAKE: You have to change your messaging and product marketing with each type of LP you are selling to. A large endowment fund will want a very different product to a Fund of Funds. Example: If you are a large endowment, you will invest in early funds but you want the manager to show you a pathway to them, in the future, being able to take not a $10M check but a $50M check from the endowment. Whereas the Fund of Funds will likely want you to stay small with each fund. So when discussing fund plans, it is crucial to keep these different desires in mind. If you are raising a $10M fund, you will be too small for institutional LPs and will raise from individuals and family offices. An LP will never want to be more than 20% of the LP dollars in a fund and so the size at which an institutional LP (really the smallest fund of funds) would be interested is when you raise $25M+ and they can invest $5M. Generalisation but a good rule of thumb to have. LP Composition of Your Fund: Speaking of one LP being 20% of the fund dollars, it is helpful to consider the LP composition you would like to have for your fund. The most important element; you want to have a diversified LP base. A diversified LP base is important in two different forms: No LP should be more than 20% of the fund at a maximum. That said you do not want to have so many investors in your fund it is unmanageable. LPs need time and attention and so it is important to keep that in mind when considering how many you raise from. Some LPs will want preferred terms or economics for coming into the first close or being one of the first investors, if you can, do not do this. It sets a precedent for what you will and will not accept and then for all subsequent investors, they will want the same terms and rights. You want to have a diversification of LP type (endowments, fund of funds, founders, GPs at funds etc). Why? In different market cycles, different LPs will be impacted and so if you only raise from one LP type, if a market turns against that LP class, then your next fund is in danger. Example: We will see the death of many mico-funds ($10M and below). Why? The majority raised their funds from GPs at larger funds and from public company founders. With the changing market environment, most GPs are no longer writing LP checks and most public market founders have had their net worths cut in half by the value of their company in the public market and so likewise, are no longer writing LP checks. In this case, the next funds for these funds will be in trouble as their core LP base is no longer as active as they used to be. We are seeing this today. Prediction: 50% of the micro-funds raised in the last 2 years will not raise subsequent funds. Going back to the question of diversification, my preference and what we have at 20VC, the majority of dollars are concentrated from a small number of investors. Of a $140M fund, we have $100M invested from 5 large institutions. These are a combination of endowments, Family Offices, a High Net Worth Individual and a Fund of Funds. The remaining $40M originates from smaller institutions or individuals, for us we have over 50 making up that final $40M. For me, I really wanted to have a community around 20VC Fund and so we have over 40 unicorn founders invested personally in the fund as LPs. Bonus Points: The best managers select their LPs to play a certain role or help with a potential weakness the manager has. For example, I was nervous I did not have good coverage of the Australian or LATAM startup market and so I was thrilled to add founders from Atlassian, Linktree, Mercado Libre, Rappi and Nubank as LPs to help in regions where I do not have such an active presence. If you can, structure your LP base to fill gaps you have in your ability. Status Check In: Now we know our minimum viable fund size, we know the team composition we are going out to raise with, we know the LP type that we are looking to raise money from and we know how we want our desired fund cap table to look. Now we are ready to move to the LPs themselves. Fill Your Restaurant with Friendlies: As I said, the appearance of your raise having heat and momentum is important. Mistake: The biggest mistake I see early fund managers make is they go out to large institutional investors that they do not have an existing relationship and spend 3-4 months trying to raise from them. They lose heat, they lose morale and the raise goes nowhere. Whatever fund size you are raising, do not do this. Fill your restaurant with friendlies first. What does this mean? Go to anyone you know who would be interested in investing in your fund and lock them in to invest. Create the feeling that progress is being made and you have momentum. BONUS POINTS: The best managers bring their LPs with them for the fundraise journey. With each large or notable investor that invests in your fund, send an email to the LPs that have already committed to let them know about this new notable investor. This will make them feel like you have momentum, they are in a winner and many will then suggest more LP names, wanting to bring in their friends. MISTAKE: Do not set a minimum check size, some of the most helpful LPs in all of my funds have been the smallest checks. Setting a minimum check size will inhibit many of the friendlies from investing and prevent that early momentum. The bigger the name the incoming investor has the better. You can use it for social validity when you go out to raise from people you know less well or not at all. Different names carry different weight, one mistake I see many make is they get a big name invested in their fund but it is common knowledge to everyone that this LP has done 200 or 300 fund investments, in which case, it does not carry much weight that they invested in your fund. Be mindful of this as it can show naivety if you place too much weight on a name that has invested in so many funds. Discovery is Everything: The world of LPs is very different to the world of venture. 99% of LPs do not tweet, write blogs or go on podcasts. Discovery is everything. When I say discovery I literally mean finding the name of the individual and the name of the organization that is right for you to meet. This can take the form of several different ways but the most prominent for me are: The Most Powerful: Create an LP acquisition flywheel. What do I mean by this? When an LP commits to invest in your fund. Say to them, “thank you so much for your faith and support in me, now we are on the same team, what 3 other LPs do you think would be perfect for the fund?” Given they have already invested, they already believe in you and so 90% of them will come back with 3 names and make the intro. Do this with each LP that commits and you will create an LP acquisition flywheel. Bonus Point: The top 1% of managers raising will already know which LPs are in the network of the LP that has just committed and will ask for those 3 specific intros. They will then send personalized emails to the LP that has just committed. The LP is then able to forward that email to the potential LP you want to meet. You want to minimize the friction on behalf of the introducer and so writing the forwardable email is a great way to do this. The Most Likely to Commit: LPs are like VCs. When one of their portfolio managers makes an intro and recommendation to a potential fund investment, they will place a lot more weight on it than they would have otherwise. So get your VC friends to introduce you to their LPs, it is that simple. Remember, you have to remove the friction from the introducer. So, make sure to send the email they can forward to the LP. Make this personalized and concise. Mistake: Many VCs do not like to introduce other managers to their LPs as they view it as competition. This is moronic. If the manager asking for the intro is really good, they will raise their fund with or without your intro. If they are not good, then you can politely say it would not be a fit for your LP and move on. Do not be too protective of your LPs from other managers. The Cold Outbound: I am not going to lie cold outbound for LPs is really hard. Here is what I would suggest: Pitchbook: It is expensive and many cannot afford it but if you can, it is worth it for LP discovery. They have thousands of LPs of different types on the platform all with their emails and contact details. Those are less useful as a cold email to an LP is unlikely to convert but just finding their names and the names of their organization is what is important. You can then take that to Linkedin to then find the mutual connections you have with that person and ask for a warm intro. Linkedin: Many LPs have the funds that they have invested in on their Linkedin profiles with the title “Limited Partner”. If they are invested in a fund that is aligned with the strategy that you are raising for, there is a strong chance they might be a fit. For example, I invest in micro-funds and have invested in Chapter One, Scribble, Rahul from Superhuman and Todd’s Fund, and Cocoa Ventures, so you see this and see I like sub $25M funds with a specific angle. Clearbit: Often you will know the name of the institution but not the name or position of the person within the institution that you are looking to raise from. Download a Google Chrome Plugin called Clearbit. With Clearbit you can simply insert the URL for the organization you would like to speak with and then all the people within it will appear and you can select from title and their email will be provided. Again, if you do not want to cold email, you now have their name which you can take to your community, to ask for the intro. MISTAKE: LPs invest in lines, not dots. Especially for institutional LPs, it is rare that an institution will meet you and invest in you without an existing relationship and without having followed your work before. A mistake many make is they go to large institutions and expect them to write a check for this fund, it will likely be at best for the fund after this one or most likely the third fund. This does not mean you should not go to them with your first fund but you should not prioritize them and you should not expect them to commit. I would instead go in with the mindset of we are not going to get an investment here, so I want to leave the room understanding what they need to see me do with this first fund, to invest in the next fund. The more detailed you can get them to be the more you can hold them to account for when you come back to them for Fund II. Example: If they say, we want to see you are able to price and lead seed rounds and we are not sure you can right now. Great. Now when you come back to them in 12 months' time, you can prioritize the fact that you have led 80% of the rounds you invested in, and their core concern there has been de-risked. In terms of how I think about LP relationship building, I always meet 2 new LPs every week. I ensure with every quarter, I have a check-in with them and ensure they have our quarterly update. This allows them to follow your progress, learn how you like to invest, and communicate with your LPs. It also really serves to build trust. Doing this not in a fundraising process also removes the power imbalance that is inherent within a fundraise and allows a much more natural relationship to be created.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  Welcome back to 20 VC The Memo with me, Harry Stebbings. Now, The Memo is the monthly show where we deep dive on a specific topic or company and go into detail. Today, we're focusing on the topic of raising a venture fund. Now, this could be a first-time fund or a subsequent fund, but this is the first episode in what will be a series in the biggest lessons I've learned from raising close to $400 million over the last four years, with everything from LP construction to finding new LPs and everything in between. I'd really love to hear your thoughts and feedback on this type of show. And so let me know what you think on Twitter, at Harry Stebbings. Also, just so I don't get in trouble for this on Twitter, these are just my experiences and lessons and so there'll be a lot of other thoughts and other opinions.

• 0:42Harry Stebbings?

  Do share them on Twitter and I'd love to hear your thoughts, but to the show today. And speaking of raising a first-time fund as we are today, AngelList is making it easier than ever to launch a fund. I love using the AngelList platform because it removes all the friction associated with starting and scaling a fund. Whether you're running SPVs, a venture fund like me, or a rolling fund, AngelList has you covered. I find so many managers in the early days really very worried about the process and structure of raising a fund. AngelList are incredible and take all that burden off you. It really is a game changer for fund managers launching and then for founders and their teams. AngelList also has a suite of startup products that abstract away all the complexity associated with running a startup. You can launch a fundraising-ready startup in just a few clicks

• 1:27Harry Stebbings?

  and AngelList handles all the incorporation, the banking, the cap tables, all of that, all in one place. This allows startups to focus on building. So if you're a founder, you can launch your company at angellist.com/20vc, whether you're a founder, a funder, or investor. You're in great hands with AngelList. And speaking of products like AngelList that I just love, what is the commonality across legal, sales, finance, HR, marketing, and procurement? Tough one, contracts. Contracts are at the core of all of them. Enter Ironclad. Ironclad is the only platform built from the ground up to handle all contract types. But in the past, I've spent a fortune on buying like these point solutions with very specific

• 2:10Harry Stebbings?

  Use cases or no more with Ironclad. There is no need to buy separate tools for drafting, editing, negotiation, storage, search and everything in between. Ironclad just puts it all in one platform, making contracts fast, secure, compliant and airtight. And really for me as a founder, having that peace of mind when it comes to contracts, it's so invaluable for me. And that's why some of the biggest brands in the world like Mastercard and L'Oréal and then more recent companies like Snap and Dropbox all love and use Ironclad. Head over to ironcladapp.com to find out more.

• 2:50Speaker 01

  You have now arrived at your destination.

• 2:54Harry Stebbings?

  So over the last four years, I've raised around $400 million across different vehicles from many different types of investors in funds. Today, I'm going to break down the early stages of raising a fund and then stay tuned for a follow up to this where we will in detail break down a fund raising deck for a fund, what to do, what not to do. But to the first element today, your fund size is your strategy. The most important decision you will make is the size of fund you raise. So much of what we discuss today will change according to your fund size target. Remember, your fund size is your strategy. If you are raising a $10 million fund, you are likely writing collaborative checks alongside a lead investor. If you are raising a $75 million fund, you will likely be leading

• 3:39Harry Stebbings?

  early stage seed rounds. And what investors expect to see from you, whether it's a $10 million or a $75 million fund are very, very different. And these are very different ways of investing. Now, the single biggest mistake I see fund managers make is they go out to fundraise with too high a target fundraise. One of the most important elements in raising for a fund is creating the feeling of momentum in your raise. The more of the fund you have raised and the speed with which you have raised those funds dictates that momentum. So the smaller the fund, the easier it is to create that heat and momentum in your raise. So now an action point. Do the work to figure out your minimum viable fund size or MVF. S, minimum viable fund size.

• 4:23Harry Stebbings?

  This is the minimum size of the fund that you can execute your strategy on. You do this by examining your portfolio construction. In other words, how many investments do you want to make in this fund? Or the level of diversification? And then alongside that, the average check size you would like to invest in each company. Now, many people forget to discount the fees when doing this maths. And so the traditional fund will charge 2% fees per year. And so across the life of the fund, which is usually 10 years, that's 20% of the fund allocated to fees. It might be helpful for us to use an example. So we're going to raise a $10 million fund. 20% is allocated to fees for the manager to manage and run the fund. And so we're left with 8 million in investable capital.

• 5:07Harry Stebbings?

  Now, a good level of diversification for an early-stage fund is 30 companies. And so with this fund size, I'd recommend 32 investments with an average check size of 250K per company. That is the $8 million in invested capital. And big tip, I often see managers come to me raising a seed fund and they say, "Oh, we're only going to make 15 investments." This is not enough. You are not a good enough picker at seed to only have 15 investments. You need a large enough level of diversification. And 30 is generally considered large enough when you run the maths. Likewise, I sometimes see 100 or even 200 investments per fund. This is a spray and pray approach bluntly.

• 5:48Harry Stebbings?

  And although it works for some, your upside is inherently capped when you run the maths on the fund sizes like that. And for me personally, it's not what I look to invest in as an LP or a fund investor. Now, a big element to point out here is with this example, the $10 million fund minus the $2 million in fees, leaving us $8 million of investable capital. We haven't left any allocation for reserves in this example budget. For those that do not know, reserves are the dollars you set aside to reinvest in existing portfolio companies. Different funds reserve different amounts. On the low end, there's 0% reserves. And on the high end, some even have 70% of the fund reserved for follow-on rounds. In this example...

• 6:30Harry Stebbings?

  Given the size of the fund being ten million dollars with a seed focus, I would recommend we have a no reserves policy. Any breakout companies, you can go to LPs and create SPVs to concentrate further capital into your best companies. This is also better for you bluntly as a manager, as you then have deal by deal carry on the SPVs that are not tied to the performance of the entire fund. So now we know ten million dollars is our minimum viable fund size and we want to make thirty investments at least and we want to invest at least two hundred and fifty K per company. Great. Next step. Set a target that is on the lower end, as I said. You can always have a hard cap that is significantly higher, but you do not want the target to be too far away

• 7:14Harry Stebbings?

  that LPs question whether you'll be able to raise the fund at all. This is one of the biggest reasons why many LPs do not invest in a first time fund. They are simply unsure whether the fund will be able to be raised at all. So a great example of this with our ten million dollar fund size, if you actually want to go out and raise twenty million dollars, you can set a target of ten million dollars with a hard cap of fifteen or twenty, but set the target of ten, not the target at twenty. You have to make it achievable and make LPs see the finish line in sight. Next, we have the team. Alongside the size of the fund, team composition is everything simply put. And LPs like managers who've invested in the stage you are wanting to invest in moving forwards.

• 7:59Harry Stebbings?

  They'd like to see track record. Important, I see so many angels write checks into breakout Series B or Series C companies and then they go out and try and raise a seed fund. Do not do this. This does not prove you are a good seed investor, but it merely shows you have access to Series B and Series C investments. These are very different things and actually can only serve to discredit you often as it shows a little bit of naivety. With regards to track record, in the past, TVPI or paper markups, they were enough. Now, there is a much greater focus on DPI, which is returned capital to investors. How much cash have you sent back to your investors? So LPs want to see. That you've invested before at the stage that you want to invest in with this fund.

• 8:43Harry Stebbings?

  And then also, they want to see that the team has worked together before. This is really important. I always say you want to remove the barriers to know. If you have not worked together as a team, the LPs that you are raising from will inherently view this as a massive red flag and label it team risk. It's that simple. It's pretty hard to get over. And so try and show a pathway or some form of relationship history to prove to the LP that you have worked together in some capacity. It could be that you've sat on a board together. It could be that you've worked on 10 company investments together. Try and show a pathway of relationship history to mitigate this labelled team risk. Okay, so now we're going to move to navigating the world of LPs.

• 9:27Harry Stebbings?

  Earlier, I said the fund size is your strategy. Absolutely, the size of fund you raise will dictate how you deploy that fund. The size of fund you raise will also massively dictate the type of investors that will invest in your fund. Big mistake that I see managers make. You have to change your messaging and your product marketing for the fund with each type of LP that you are selling to. For example, a large endowment fund will want a very different fund product to a fund of funds. A great example of this, if you're a large endowment fund, you will invest in early funds, but you will want the manager to show a pathway to them being able to take not a $10 million cheque from you, but a $50 million cheque from you in the future in subsequent funds.

• 10:11Harry Stebbings?

  Whereas the fund of funds will likely want you to stay small with each fund. So when discussing fund plans in the future, it's crucial to remember different incentives and different motivations with each type of investor. That's just one example, there are many more. So if you're raising a $10 million fund, we clearly like this example. But if you're raising a $10 million fund, you'll be too small for institutional LPs and will raise from individuals and family offices. Really, honestly, any sub $25 million fund, you're too small for institutions. And so you'll be raising from individuals. This could be GPs from large funds or public company founders or high net worth individuals. Or family offices. An LP will never want to be more than 20% of the LP dollars in a fund.

• 10:55Harry Stebbings?

  And so the size at which an institutional LP would be interested is when you raise $25 million plus at the very minimum, and then they can invest at least $5 million. It is a gross generalisation. There are some exceptions, but it's a very good rule of thumb to have. One thing that's also quite interesting to remember, it's sometimes easier to raise a $100 million fund than it is a $30 million fund. Why? Because you unlock new tiers of LPs when you increase the size of your fund. More institutions are able to invest in a $100 million fund than they are a $30 million fund. And if you're raising a $30 million fund, you're raising it from individuals and family offices who traditionally write much smaller cheques.

• 11:38Harry Stebbings?

  So you're going to have to get a lot of very small cheques into your $30 million fund, whereas the $100 million fund actually opens up a large pool of institutions who can write five to $10 million cheques. And actually, that makes the fundraise a lot easier in many cases. Now, it is important to discuss the LP composition you would like to have for your fund. The most important element, you want to have a diversified LP base. Now, a diversified LP base, it comes really in two different forms. Number one, no LP should be more than 20% of the fund at a maximum. That said, you do not want to have so many investors in your fund, it is unmanageable.

• 12:19Harry Stebbings?

  LPs need time and attention, and so it is important to keep that in mind when considering how many you raise from. Now, there will be some LPs that say, hey, I'm more than happy to be more than 20% of the fund at a maximum. Number one, you don't want to have too many of your LP dollars concentrated in one investor. And then the majority of times where this happens, they will want preferred terms or economics for being such a large investor in the fund. If you can, really try not to accept this. It sets a precedent for what you will and will not accept. And then for all subsequent investors, they will want the same terms and rights. And so it can set a very difficult precedent that you will largely have to follow. So if you can.

• 13:00Harry Stebbings?

  Try to avoid this. Now, the second element of diversification of your LP base that is important is a diversification of LP type. We have endowments, we have fund of funds, corporates, founders, GPs at funds. Why do we want a diversification of LP type? Well, in different market cycles, different LPs will be impacted. If you only raise from one LP type, if a market turns against that LP class, then your next fund is in danger. An example of this would be, I think we will see the death of many micro funds. This is 10 million and below. Why? The majority raised their funds from GPs at larger funds and from public company founders. With the changing market environment that we've seen today and we're seeing now with this recession,

• 13:43Harry Stebbings?

  most GPs are no longer writing new LP checks and most public market founders have seen their net worth cut in half with the value of their companies being smashed in the public markets. And so they're likely no longer writing LP checks. In this case, the next funds for these funds will be in trouble as their core LP base, the GPs and the founders, are no longer as active or are writing much smaller fund checks than they used to. As I said, prediction, I think 50% of the micro funds raised in the last two years will not raise subsequent funds. Now, going back to the element of diversification, my preference and what we have at 20 VC, I've never revealed this before.

• 14:23Harry Stebbings?

  So, fun spoiler alert, the majority of dollars are concentrated with 20 VC from a smaller number of investors. So when we look at our 140 million dollar funds, we have 100 million dollars invested from five large institutions. These are a combination of endowments, family offices, a high net worth individual and a fund of funds. Now, the remaining 40 million dollars of the 140 million originates from smaller institutions or individuals. For us, we have over 50 people making up that final 40 million. For me, I really wanted to have a community around 20 VC fund. And so we have 40 unicorn founders invested personally in the fund as LPs.

• 15:02Harry Stebbings?

  Now, bonus points, I think the best managers select their LPs to play a certain role or help with a potential weakness. Manager has. For example, I was nervous. I did not have great coverage in terms of deal flow in Australia or the Latam market. And so I was thrilled to add founders from Atlassian, Linktree, MercadoLibre, Rappi and NewBank as LPs to really help in regions where I do not have such visibility and an active presence. So if you can, really structure your LP base to fill gaps you have in your own ability. Now we're going to do a status check in. We have our minimum viable fund size. We know the team composition we're going out to raise with. We know the LP type that we're looking to raise money from.

• 15:45Harry Stebbings?

  And we know how we want to structure our fund cap table. Now we're ready to move to the LPs themselves. So I always say, fill your restaurant with friendlies. As I said, the appearance of your raise having heat and momentum is really important. The biggest mistake I see early fund managers make is they go out to large institutional investors that they do not have an existing relationship with, and they spend three to four months trying to raise from them. They lose heat, they lose morale and enthusiasm and the raise goes nowhere. Whatever fund size you are raising, do not do this. Fill your restaurant with friendlies first. What does this mean, fill your restaurant with friendlies? Go to anyone you know who would be interested in investing in your fund and lock them in to invest.

• 16:30Harry Stebbings?

  Create the feeling that progress is being made and that you have momentum with your raise. Bonus points, the best managers bring their LPs with them for the fundraise journey. With each large or notable investor that you get in your fund, send an email to the LPs that have already committed to let them know about this new notable investor. This will make those LPs feel like you have momentum, feel like they're already invested in a winner in you. And many of them will then suggest more LP names, wanting to bring their friends into a winner. Now, again, a massive, massive mistake I see so many people make is always this arrogance on check size. Do not set a minimum check size for people to invest in your fund.

• 17:13Harry Stebbings?

  Consistently, the most helpful LPs for me have often been the smallest LP check.

• 17:20Harry Stebbings?

  Setting a minimum check size will inhibit many of your friendlies from investing in your fund and prevent that early momentum from being created. Now, the bigger the name that you have invested in your fund, the better. You can use it for social validity when you go out to raise from people you know less well or not at all. Different names carry different weights. Blue chip institutions are the Chanel or the Prada and are the most valued investors. So the blue chip institutions are the best of the best. And then you have blue chip individuals. Those are those that are hugely well respected and do not write many fund checks. Those would be kind of the blue chip individuals. I think a big mistake I see a lot of people make is they get a big name invested in their

• 18:01Harry Stebbings?

  fund, but that big name is also invested in 200 or 300 other funds. In which case, it doesn't carry much weight that they invest in your fund. So be mindful that this can show naivety really, that you're placing too much weight on a name who has done everyone's fund. So now we're going to move to the discovery process for finding new LPs. Now, the world of LPs is very, very different to the world of venture. 99% of LPs do not tweet, they do not write blogs or go on podcasts, and so discovery is everything. When I say discovery, I literally mean finding the name of the organisation and the person within that organisation that is right for you to meet. This discovery can take form in a couple of different ways, but the most prominent

• 18:44Harry Stebbings?

  for me are, number one, the most powerful. Create an LP acquisition flywheel. What do I mean by this? When an LP commits to invest in your fund, say to them, "Thank you so much for your faith and support in me, now we're on the same team. What three other LPs do you think would be perfect for the fund?" Given they've already invested in your fund, they already believe, and so 90% of them will come back with three names and make those intros. Do this with each LP that commits and you will create an LP acquisition flywheel that is reinforcing. Now, bonus points, the top 1% will already know which LPs are in the network of the LP that they've requested the intro from, and they will ask for three very specific

• 19:30Harry Stebbings?

  An example of this is it's very different saying, "Hi Sarah, I would love for three introductions to three people that you think are relevant" versus, "Hi Sarah, I would love for an introduction to Samantha, Tom and Jessica at these institutions." Very specific, very pointed, and you will get actually different levels of conversion because of how specific you've been. That's a really big element in terms of how the top one percent differ to the rest. Then you also want to minimise the friction on behalf of the introducer. And so you want to write a formidable email that is very, very concise and very pointed. So send that formidable email to the person who's committed to your fund with the request of the intro to the other person. This will also increase the conversion rate.

• 20:15Harry Stebbings?

  So now we've created that LP acquisition flywheel, a second really, really great way to find and meet new LPs, and actually the most likely way to get them to commit, is LPs are like VCs. When one of their portfolio managers makes an intro and a recommendation to a potential fund investment, they will place a lot more weight on it than they would have done otherwise. So get your VC friends and community to introduce you to their LPs. It's that simple. Remember, you have to remove the friction from the introducer. So make sure to send the email they can forward to the LP, make this personalised and make it concise. Massive mistake for the VC community. Many VCs do not like to introduce other managers to their LPs. They view it as competition. This is moronic.

• 20:59Harry Stebbings?

  If the manager asking for the intro is really good, they will raise their fund with or without your intro. If they are not good, then you can politely decline and say it wouldn't be a fit for your LP and move on. But do not be too protective of your LPs from other managers. Your LPs will also be grateful for high-quality deal flow to potential new managers to invest in. Now, we're going to move to the third way, which is the cold outbound. I'm not going to lie, cold outbound for LPs is really hard. Here is what I would suggest. Three different ways. Number one, pitch book. It is super expensive. You might have to sell a kidney and so many cannot afford it. But if you can, it is worth it.

• 21:40Harry Stebbings?

  For LP discovery, they have thousands of LPs of all different types on the platform, all with their emails and contact details. Ironically, the emails and contact details are less useful as a cold email to an LP is really unlikely to convert. But just finding their names and names of the organisation is what is important. You can then take that to LinkedIn to then find the mutual connections you have with that person and ask for a warm intro. Now, another way to do it is LinkedIn. Many LPs have the funds that they've invested in on their LinkedIn profiles with the title Limited Partner. So you can search for Limited Partner as a title and it will show all the people that self diagnose or self title as a limited pawn in a fund.

• 22:23Harry Stebbings?

  If they're invested in a fund that is aligned to the strategy that you're raising for, there is a strong chance they might be a fit for you. For example, I invest in micro funds, I've invested in Chapter One, Scribble, Rahul from Superhuman and Todd Goldberg's Fund, Kakoa Ventures. So if you see this, you clearly see that I like sub twenty five million dollar funds with a very specific angle. Then, if you are of that same slant, I might be a good fit for you. Find people who have invested in similar style and type funds because they'll likely be a fit for you. Finally, Clearbit. Often you will know the name of the institution, but not the name or position of the person within the institution that you're looking to raise from. Download a Google Chrome plugin called Clearbit.

• 23:07Harry Stebbings?

  With Clearbit, you can simply insert the URL for the organisation you would like to speak with and then all of the people within that institution or organisation will appear. And you can select from title and their email and name will be provided. Again, if you do not want a cold email, which again is really, really hard, you now at least have their name, which you can go to your community to, to ask for the warm intro. Now, a massive, massive mistake, LPs invest in lines, not dots. Especially for institutional LPs, it is so rare that an institution will meet you and invest in you without an existing relationship and without having followed your work before. A massive mistake many make is they go to large institutions and expect them to write a cheque for this fund.

• 23:50Harry Stebbings?

  likely be at best for the fund after this one or most likely the third fund. This does not mean you should not go to them at all with your first fund. It's really important to build that relationship early on, but you should not prioritize them and you should not expect them to commit. I would instead go in with the mindset of we're not going to get an investment here. So I want to leave the room, understanding what they need to see from me with this first fund. What are their biggest concerns they have with me today? And what do I need to do for them to invest in the next fund? The more detailed you can get them to be, the more you can hold them to account for when you come back to them for fund two and fund three. An example of this, often they will say, we want to see that you're able to price and lead seed rounds. And we are not sure you can right now. Great. That's very tangible there.

• 24:35Harry Stebbings?

  Now we can come back to them in 12 months' time. You can prioritize the fact that you've led 80% of the rounds you've invested in. And their core concern there has been de-risked with your leading 80% of the rounds. In terms of how I think about relationship building with LPs, I always meet two new LPs every week. Two new LPs every week. I then ensure with every quarter, I have a check-in with them and ensure that they each have a quarterly update. I email them personally with this quarterly update every single quarter. Now, that's over 100 different LPs, because I've been doing it for quite a while, despite my youth and good looks. Now, this allows them to follow your progress. It allows them to learn how you like to invest.

• 25:17Harry Stebbings?

  It allows you to build trust with them and shows them how you communicate with your LPs. Doing this not in a fundraising process also removes the power imbalance that is inherent within a fundraise and allows a much more natural relationship to be created. So all of this, even before we've gone to the deck, and the right way to package and market your fund. Now, we're going to do a very special part two on this, so stay tuned. But I really hope this was helpful and I've loved breaking this down with you today.

• 25:47Harry Stebbings?

  Now, as I said, this is just part one. I cannot wait to do a subsequent episode where we break down a fundraising deck, revealing the do's, the don'ts, the biggest mistakes. So that is to come, but I'd love to hear your thoughts on Twitter @HarryStubbings. But before we leave you today, AngelList is making it easier than ever to launch a fund. I love using the AngelList platform because it removes all the friction associated with starting and scaling a fund. Whether you're running SPVs, a venture fund like me, or a rolling fund, AngelList has you covered. I find so many managers in the early days really very worried about the process and structure of raising a fund. AngelList are incredible and take all that burden off you. It really is a game changer for fund managers launching and then for founders and their teams.

• 26:30Harry Stebbings?

  AngelList also has a suite of startup products that abstract away all the complexity associated with running a startup. You can launch a fundraising-ready startup in just a few clicks, and AngelList handles all the incorporation, the banking, the cap tables, all of that, all in one place. This allows startups to focus on building. So if you're a founder, you can launch your company at angellist.com/20vc. Whether you're a founder, a funder, or investor, you're in great hands with AngelList. And speaking of products like AngelList that I just love, what is the commonality across legal, sales, finance, HR, marketing, and procurement? Tough one: contracts. Contracts are at the core of all of them. Enter Ironclad.

• 27:12Harry Stebbings?

  Ironclad is the only platform built from the ground up to handle all contract types. But in the past, I've spent a fortune on buying like these point solutions with very specific use cases. Well, no more. With Ironclad, there is no need to buy separate tools for drafting, editing, negotiation, storage, search, and everything in between. Ironclad just puts it all in one platform, making contracts fast, secure, compliant, and airtight. And really, for me as a founder, having that peace of mind when it comes to contracts, it's so invaluable for me. And that's why some of the biggest brands in the world, like Mastercard and L'Oréal, and then more recent companies like Snap and Dropbox, all love and use Ironclad.

• 27:54Harry Stebbings?

  Head over to ironcladapp.com to find out more. As always, I so appreciate all your thoughts and all your support. It really does mean so much to me, and I can't wait to bring you an incredible episode on Friday.