For venture capitalists (VCs), raising the necessary cash to back even one fund per year can prove an arduous task. Since most VC firms and any Limited Partners (LPs) they might be associated with require no less than 90-180 days’ notice of any fundraising initiatives taking place, backing more than one fund per year can feel nearly impossible. Even at the best of times, once fundraising initiatives are announced and agreed upon, the actual fundraising process itself can last anywhere from a few weeks to several months or longer, depending on the type of fund itself as well as how much capital is required to back it.
Thankfully, my team and I have integrated a strong vetting process into our fundraising capabilities. This enables us to know whether or not the business, entrepreneur, or fund that we plan to investing in meets certain preliminary requirements once talks with them are initiated, and whether or not further requirements can (and will) be met prior to an investment being made.
As someone who has over 15 years of experience mentoring and coaching hundreds of companies, and investing in dozens of funds of all kinds and sizes throughout the U.S., I have helped spearhead initiatives to invest millions of dollars in funds tailored to fuel businesses in the retail, medtech, and restaurant industries, amongst others. In this article, I want to cover the most crucial aspects necessary when looking to back multiple funds in the same year.
It all starts and ends with the right people
At the end of the day, it requires a VC to possess the ability to manage a high-performing team in order to back multiple funds within the same annual timeframe. In setting clear expectations on what specific deliverables are needed, most investors will already find themselves well on their way towards properly managing the process of reaching those goals.
If you are looking to back one or more smaller funds within the same year, you should expect the fundraising process to take longer than it would with other larger and more established funds. You and your team should be prepared to meet with a lot of rejection from additional investors and LPs, meaning that you will likely need to have not only a Plan B at the ready, but also Plans C-H in the case of any unforeseen caveats or hurdles. If any of these backup plans will require you to invest larger amounts of your own capital into a fund you wish to back, it may be time to rethink your investment or fundraising strategy with your team.
On the opposite side of this proverbial coin, if you wish to back multiple larger and more established funds within the same year, you and your team must ensure that those funds are not only properly vetting through your own internal processes, but that they possess a proven track record of success. There is a common misconception that even larger funds with a history of profitable returns are the option to back, despite some 95% of all VC funds either ending up breaking even or costing their investors money in the long run.
Understand the intricacies of backing multiple funds
As a VC, it’s vital to know that the multiple funds you plan to back in the same year not only consist of businesses or companies that won’t compete with or cannibalize one another, but also that those funds are properly allocated to each individual business underneath a particular fund’s umbrella in your portfolio. Likewise, as obvious as this may sound, you should also understand how you and your team can best balance backing multiple funds at once, each consisting of its own unique array of businesses, before making any kind of investment decision.
When the time comes to choose which separate funds you wish to back, both you and your team should lean heavily on your own vetting process. Check, double-check, and triple-check that the businesses (and their leadership teams) within those funds are uniquely qualified to fund through their own proven track record of success and an ability to showcase resiliency in the face of adversity. Regardless of which funds you ultimately choose to back in the same year, the process of deciding which ones to back will heavily fall on the capabilities of the leadership teams of the companies that comprise the funds themselves.
Ultimately, no one can assuredly say which funds are the “best” to back at any given time. The realms of entrepreneurship and venture capital are ripe with uncertainty, but if you have a solid and dedicated team alongside you — one that also understands the complexities of backing multiple funds in the same 12-month timeframe — that uncertainty, as well as other potential risks, can be mitigated.
She has launched numerous venture funds for over 15 universities across the US and has built a powerful co-investor US network with offices in Texas and New York. Diane is Co-founder of Global She Ventures, an accelerator in partnership with Rice University to catalyze global women entrepreneurs. Diane is also Co-founder to a national media platform, Identity Unveiled highlights trailblazing Asian American women who have broken barriers and become firsts in their industry.