Let's face it, launching a VC fund as a first-time manager is a hugely challenging feat. Not only are you committing yourself to a long-term project (we have all heard that VC funds now outlast the average marriage), but the legal, regulatory and tax considerations are complicated, you will need to bring various service providers into the mix and fundraising itself is gruelling.  But if you have found yourself here then you probably know all that and you still want to learn more!

In this series of articles, we will take a look at some of the key considerations for first-time VC managers. In this first instalment of the series we are focusing on laying the right foundations for a successful fundraise.

Does the world need another VC fund?

Needless to say, we are in an incredibly competitive fundraising landscape right now. There are already a large number of VC funds trying to raise capital and only a small group of investors who routinely write cheques for first time managers. If someone on your team has an outstanding track record, you may get away with launching a fund which is similar to others in the market, but in all other cases you will need to find a way to differentiate yourself. Do you have a unique strategy, deal pipeline, network or tech-enabled proposition? Have you clearly articulated that differentiation in your marketing materials? Remember, launching a fund isn't the only option to get started – you can invest on a deal-by-deal basis using one of the many online platforms in the market (see below) or team up with an existing like-minded VC.

Assemble the crew

It's an obvious point but think carefully about your own strengths and weaknesses – and build a team that plugs the gaps (rather than duplicating skills/expertise you already have). Perhaps you have a fantastic investment track record, but you don't have a great network of investors. Or perhaps you have a wealth of first-hand founder experience, but you don't have experience managing a fund in a regulated environment. Investors will need to get comfortable that the team can "cover all bases".

Plan for the long term

Have a frank discussion with your team about the financial and time commitment needed to raise the fund. You will potentially need to wait several years before you can exit investments so it's important to make sure your team is comfortable waiting a reasonable amount of time without a payday! Prepare a budget and work through it with your team. We often hear that a key barrier to raising fund II is that cracks have emerged within the team – whether that is due to people leaving, differences of opinion/personality clashes, etc. So it clearly pays off to have these difficult conversations sooner rather than later. Think about any plans within your team to move country in the next few years and also think through any tax changes for carried interest in the near future and what they might mean to the amount you take home!

You will probably have heard that fundraising can take 12-24 months, but beware that the time periods in those statistics typically start from first closing and disguise the additional time it takes to get to a closing in the first place (during which no management fees will be coming in). Think about how you will support yourselves financially while you are getting the fund launched. Do you have an agreement between the team as to how you will fund set up costs – and how will you share the sunk costs if things don't go ahead (or if someone has a change of heart before the fund is launched)?

Track record is key!

Investors will want to know that the team they are investing with has a track record of sourcing, executing and realising deals within the fund's investment strategy. If you have a track record from a previous employer, make sure you have permission to use it. Make sure you are clear about who was involved in the prior track record (including what your role was on those deals). Speak to your legal counsel about how this should be presented to investors in different jurisdictions – particularly US investors!

If you don't have a track record of investing – e.g., because your strategy is novel and doesn't correspond exactly to what you have done in the past - consider making some investments on a deal-by-deal basis. There are plenty of platforms offering cost-effective ways to make investments on a deal-by-deal basis and you can start to build up an investor-base that will prove useful when it is time to launch your fund. If you do take this approach, make sure your investments fit within the investment strategy of your fund – and think about the returns from these investments in the context of the proposed fees and carry of the fund. If you are thinking of seeding your fund with some of these investments, make sure to take legal and tax advice to ensure you are set up for success from the outset.

Plot your timeline

If you work with service providers that are experienced with first time managers, they will encourage you not to do too much too soon. You don't need to set up the entire fund and get all the documents finalised before you start speaking to investors – in fact, that's the opposite of what you should do as a first-time manager! Work with your service providers to put the initial steps in place so you can get on the road and gauge investor appetite, and once you have some soft-circled (or hard-circled(!)) commitments then you can start to move forward in earnest. You should be mindful about which steps on the fundraising journey have a lead-time (e.g., applying for regulatory coverage, onboarding with your administrator, opening bank accounts, etc).

Surround yourself with experts

At a minimum, you will need to find yourself legal counsel, a fund administrator and a regulatory host. But beyond these core service providers, there are many others that could help you on your journey. As mentioned above, you may consider working with placement agents/introducers, outsourced CFO/COO services, fundraising consultants, etc. It's key to work with service providers that are experienced with (and passionate about) supporting emerging managers as they will hustle on your behalf and they will have a sensible approach to cost/efficiency.

You should also consider upfront whether your service providers are a good fit for your particular fund (e.g., will your fund invest in digital assets and if so can your administrator accommodate that, do you intend to accept retail money – and is your regulatory host ok with that, are you still deciding between a few fund jurisdictions – can your service providers cover you whichever one you choose?).

This article is the first in a series which is being launched in conjunction with the Carta x Flourish Partners Emerging Manager Summit. The next instalment in this series will focus on getting the details right as you launch your first fund – you can keep up to date with this on our website.