What to Consider Before Launching a Venture Fund
How to avoid the biggest mistakes emerging managers make—and what LPs are really looking for.
📖 Thinking About Starting a Venture Fund? Read This First.
The idea of launching your own venture fund is thrilling. You’ve sourced great deals. You have operating experience. Maybe you’ve already angel-invested and built a strong founder network.
But here’s the truth:
The leap from investor to fund manager isn’t just about picking startups. It’s about building a business—and convincing others to back it.
Before you file an LPA or start chasing LP commitments, here are five hard-earned lessons every aspiring fund manager should consider:
💰 Know How Much You Can Realistically Raise—from Day One
For first-time fund managers, should aim for a fund size of around $30 million as it is often considered optimal. This amount allows for a diversified portfolio, covers operational costs, and is substantial enough to attract institutional LPs. Funds exceeding $30M typically require annual audits, which, while costly, enhance credibility with potential investors.
That first check won’t come from a pension or a fund-of-funds—it’ll come from the people who’ve known you longest. And LPs will absolutely ask: “Who else is backing you?”
💡 Pro Tip: If you can’t raise a pilot vehicle (SPV or $5M fund) from your network, use that as signal—not setback. You may need more relationship-building or proof of concept.
🧪 Test the Market Before You Commit
Don’t go full throttle before validating your LP appetite. Create a teaser, circulate a short investment memo, and start having informal LP conversations.
Ask questions like:
Would this strategy fit in your portfolio?
What check size would you consider?
What traction would you need to see?
Run your fund like a startup. Customer discovery (aka LP feedback) is everything.
Before formalizing your fund, it's crucial to test your investment thesis with potential LPs. Engage in informal discussions to gauge interest and receive feedback on your strategy. This process helps refine your thesis and ensures alignment with LP expectations.
🎯 Be Ruthlessly Specific About Your Edge
Most LPs see 500+ funds a year. Your generalist fund won’t stand out unless it’s backed by extraordinary pedigree or proven DPI.
Instead, anchor your pitch around subject matter expertise:
Industry domain (e.g. AI for logistics, fintech infra, industrial automation)
Sourcing edge (e.g. founder pipeline from X platform or X community)
Operator insights (e.g. GTM transformations, M&A experience)
The narrower your wedge, the deeper your resonance with the right LPs and founders.
LPs are more inclined to invest in fund managers who demonstrate deep expertise in specific sectors. Whether it's fintech, healthcare, or AI, showcasing a strong track record and network within a particular domain can differentiate your fund in a crowded market.
📈 Plan for Scalability: Build a Portfolio Before the Fund
LPs want to back managers who’ve already demonstrated the playbook works.
Whether through:
Angel checks with real markup data
SPVs that have exited
Deal memos that prove rigor
LPs don’t fund potential. They fund proof. Your prior investments are your track record—even if they weren’t done under a fund.
Scalability is also a critical factor for LPs, especially institutional investors. They seek funds that can grow and manage larger amounts of capital over time. Demonstrating a clear plan for scaling your fund, including team expansion and operational infrastructure, can instill confidence in your ability to handle increased investments.
🏢 Understand the Real Business Model of a Fund
Running a fund isn’t a 2-and-20 lifestyle—it’s a multi-year grind with delayed rewards.
You’ll need:
A clear management budget (can you pay yourself on x size fund?)
Time to build institutional credibility (Fund II or III is where the upside hits)
A plan for ops, compliance, and deal management
If you're not ready to wait 7–10 years for carry, focus on building advisory income or GP commit to bridge the gap.
🤝 Building and Maintaining LP Relationships
LPs are not just sources of capital; they are long-term partners. Establishing transparent communication, regular updates, and demonstrating alignment of interests are key to building trust. Understanding the unique goals and constraints of each LP type—be it family offices, institutional investors, or high-net-worth individuals—is essential for tailoring your approach.
🚀 TL;DR: Starting a fund is exciting—but it’s not for the faint of heart.
Before you launch, test your network, prove your thesis, and speak to LPs like you're running customer interviews.