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Venture Capital Fund's Fundraising Checklist

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Bhavesh Singhi
Bhavesh Singhi

The document provides a checklist for a venture capital firm raising funds. It discusses that VC involves wins for limited partners investing through the fund, the fund itself, and the entrepreneurs. It outlines the types of limited partners a fund could approach, including institutional investors and other investors with varying objectives. The checklist then discusses how the fund should create context around industry opportunities, differentiate itself from other funds, discuss its team and contribution, details of the proposed fund including investment thesis, timelines and progress to date.

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Fundraising Checklist for Venture Capital Firm Raising Funds Bhavesh Singhi May 13, 2018 Bhavesh Singhi
VC Is A 3D Win-Win-Win Business • Venture Capital practice is a business where – Limited Partners (LPs) invest money through VCs in anticipation of financial appreciation, or any other objective (more later) – Venture Capital Fund (VCF) provides mentorship and capital in return of the equity from entrepreneurs – Entrepreneurs are customers of the capital who provide share of future profits in their businesses • Increase in value of entrepreneurs’ business creates a win- win-win for LPs, VCF & the entrepreneur – Associated stakeholders such as consumers, suppliers, employees, government, etc., also stand to gain from a successful entrepreneur Bhavesh Singhi
Types of LPs And Their Objectives • Various types of LPs a VCF could approach are – Institutional Investors such as Banks1, Insurance Companies, Pension Funds, Endowments, Foundations – Other Investors such as Angels2, HNIs3, Corporates4, Family Offices, Government Programs, VC Fund of Funds (FoFs), Private Equity Funds • Varying LPs may have varying objectives such as – Financial Returns – Strategic Objectives – Access to product, distribution, lower costs, acquisition targets, increase revenue through portfolio, preferred supply through portfolio – Corporate Social Responsibility – Government agenda such as promoting Entrepreneurship, Technology 1 - http://www.thehindubusinessline.com/money-and-banking/rbi-nod-for-banks-to-invest-in-pe-venture-debt-funds/article9874451.ece 2 – Best approached through an angel network 3 - Usually brought on board by a placement agent, also entrepreneurs with successful exits 4 – Caution must be exercised that if there is one corporate competing corporate another one may not invest Bhavesh Singhi
Create Context • Highlight the potential for improvement in business environment such as political, economic, social, technological, environmental or regulatory conditions, especially for the innovation & start-up space • Narrow down upon industries that the VCF is focused upon – Generate interest by asking an intriguing question such as “How do you disrupt the crowded and fragmented Indian technology sector worth USD 200bn” Bhavesh Singhi
Opportunity • Show industry size, growth potential and most importantly need and/or readiness for innovation & disruption in the selected sectors • Give an example of how technology disrupted a sector – Show the amount of value creation – e.g. eCommerce eliminated non value adding middlemen – e.g. eCommerce provided national distribution to sellers who otherwise faced deadweight loss • Amount of money investors, VCF & LPs made – Show the appreciation • Softbank, Tiger Global, Accel Partners, Naspers, made alteast 2 times profit on their investment in Flipkart in 2018 – Risks faced in the journey as well • Flipkart’s valuation was marked down from USD 15bn to USD 5bn in 2016 by Goldman Sachs Bhavesh Singhi
Why This VCF • Every LP evaluates why should it invest money in this VCF and the VCF can focus on differentiating itself from other VCFs basis – Past Performance (Most Important Determinant) • IRR • Follow On Rounds and participation by marquee VCFs • Exits • Write-offs • Crisis Management with a Deal Gone Sour – Quality of Founding Partners – Other LPs in the Fund – Investment Needs5 of LP that the VCF can address – Investment Philosophy Approach – Industries focused upon by VCF – Market being invested into (being invested into) – Potential for cross pollination with existing portfolio – Deal generation process6 – Entry barriers for competing VCFs7 5 - Understand the portfolio strategy of the LPs and be able to fill a hole in their strategy 6 - How will the deal flow be generated - through network or individual screening? How many connects does the VCF have because without connects it will be difficult 7 – For e.g. any exclusive strategic tie-up with governmental, large investors in the sector who will co-invest in all future funds Bhavesh Singhi
VCF Team • LPs Evaluate the VCF Team basis – VCF Team Dynamics – VCF Vision – Partnership Structure & Number of GPs8 – VCF’s Understanding of the Industry – Ability to generate consistent deal flow9 – Ability to Spot Unicorns – Stakeholder Management10 • LPs Are Also Interested In Gauging VCF’s Contribution To Portfolio8 – Single GP Funds are usually perceived to be risky 9 – LPs want to be sure that the GPs are plugged into the start-up eco-system to be able to generate a consistent deal flow 10 – In some situations, you may or may not be aligned with these people in terms of motivation. Being able to stay on everyone’s good side and keep everyone happy while still giving good advice and getting things done is an art. These people skills are what get you your investors, especially if you’re starting out and just raising your first fund. You need people who can vouch for you, believe in you and your ability to successfully operate a fund, find good deals, and make good choices Bhavesh Singhi
VCF’s Contribution To Portfolio • LPs Want To Be Sure That The VCF Team is Contributing to the Portfolio – Board Management and Governance – Regular Interactions With and Hiring and Firing of Senior Management – Advice, Mentoring and Crisis Management – Networking with Customers, Suppliers, etc – Managing Support Functions Through Shared Services – Additional Fundraising with other Investors – Exit Planning: IPOs, Acquisitions, Closures Bhavesh Singhi
About The Fund • Investment Thesis • Target Industries • Target Corpus • Minimum Investment Size • Deployment Plan – For each industry, stage of portfolio company, funding round • Management Fee & Carried Interest • Fund Registration • LP Sourcing Avenues & Criteria Bhavesh Singhi
Timelines & Progress So Far • Expected Fund Closure Date • Estimated Fund Deployment Timelines • Commitments Received, especially Brand Name LPs • Deals Identified • Monitoring Access Bhavesh Singhi
Thank You Bhavesh Singhi May 13, 2018 Bhavesh Singhi

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Venture Capital Fund's Fundraising Checklist

  • 1. Fundraising Checklist for Venture Capital Firm Raising Funds Bhavesh Singhi May 13, 2018 Bhavesh Singhi
  • 2. VC Is A 3D Win-Win-Win Business • Venture Capital practice is a business where – Limited Partners (LPs) invest money through VCs in anticipation of financial appreciation, or any other objective (more later) – Venture Capital Fund (VCF) provides mentorship and capital in return of the equity from entrepreneurs – Entrepreneurs are customers of the capital who provide share of future profits in their businesses • Increase in value of entrepreneurs’ business creates a win- win-win for LPs, VCF & the entrepreneur – Associated stakeholders such as consumers, suppliers, employees, government, etc., also stand to gain from a successful entrepreneur Bhavesh Singhi
  • 3. Types of LPs And Their Objectives • Various types of LPs a VCF could approach are – Institutional Investors such as Banks1, Insurance Companies, Pension Funds, Endowments, Foundations – Other Investors such as Angels2, HNIs3, Corporates4, Family Offices, Government Programs, VC Fund of Funds (FoFs), Private Equity Funds • Varying LPs may have varying objectives such as – Financial Returns – Strategic Objectives – Access to product, distribution, lower costs, acquisition targets, increase revenue through portfolio, preferred supply through portfolio – Corporate Social Responsibility – Government agenda such as promoting Entrepreneurship, Technology 1 - http://www.thehindubusinessline.com/money-and-banking/rbi-nod-for-banks-to-invest-in-pe-venture-debt-funds/article9874451.ece 2 – Best approached through an angel network 3 - Usually brought on board by a placement agent, also entrepreneurs with successful exits 4 – Caution must be exercised that if there is one corporate competing corporate another one may not invest Bhavesh Singhi
  • 4. Create Context • Highlight the potential for improvement in business environment such as political, economic, social, technological, environmental or regulatory conditions, especially for the innovation & start-up space • Narrow down upon industries that the VCF is focused upon – Generate interest by asking an intriguing question such as “How do you disrupt the crowded and fragmented Indian technology sector worth USD 200bn” Bhavesh Singhi
  • 5. Opportunity • Show industry size, growth potential and most importantly need and/or readiness for innovation & disruption in the selected sectors • Give an example of how technology disrupted a sector – Show the amount of value creation – e.g. eCommerce eliminated non value adding middlemen – e.g. eCommerce provided national distribution to sellers who otherwise faced deadweight loss • Amount of money investors, VCF & LPs made – Show the appreciation • Softbank, Tiger Global, Accel Partners, Naspers, made alteast 2 times profit on their investment in Flipkart in 2018 – Risks faced in the journey as well • Flipkart’s valuation was marked down from USD 15bn to USD 5bn in 2016 by Goldman Sachs Bhavesh Singhi
  • 6. Why This VCF • Every LP evaluates why should it invest money in this VCF and the VCF can focus on differentiating itself from other VCFs basis – Past Performance (Most Important Determinant) • IRR • Follow On Rounds and participation by marquee VCFs • Exits • Write-offs • Crisis Management with a Deal Gone Sour – Quality of Founding Partners – Other LPs in the Fund – Investment Needs5 of LP that the VCF can address – Investment Philosophy Approach – Industries focused upon by VCF – Market being invested into (being invested into) – Potential for cross pollination with existing portfolio – Deal generation process6 – Entry barriers for competing VCFs7 5 - Understand the portfolio strategy of the LPs and be able to fill a hole in their strategy 6 - How will the deal flow be generated - through network or individual screening? How many connects does the VCF have because without connects it will be difficult 7 – For e.g. any exclusive strategic tie-up with governmental, large investors in the sector who will co-invest in all future funds Bhavesh Singhi
  • 7. VCF Team • LPs Evaluate the VCF Team basis – VCF Team Dynamics – VCF Vision – Partnership Structure & Number of GPs8 – VCF’s Understanding of the Industry – Ability to generate consistent deal flow9 – Ability to Spot Unicorns – Stakeholder Management10 • LPs Are Also Interested In Gauging VCF’s Contribution To Portfolio8 – Single GP Funds are usually perceived to be risky 9 – LPs want to be sure that the GPs are plugged into the start-up eco-system to be able to generate a consistent deal flow 10 – In some situations, you may or may not be aligned with these people in terms of motivation. Being able to stay on everyone’s good side and keep everyone happy while still giving good advice and getting things done is an art. These people skills are what get you your investors, especially if you’re starting out and just raising your first fund. You need people who can vouch for you, believe in you and your ability to successfully operate a fund, find good deals, and make good choices Bhavesh Singhi
  • 8. VCF’s Contribution To Portfolio • LPs Want To Be Sure That The VCF Team is Contributing to the Portfolio – Board Management and Governance – Regular Interactions With and Hiring and Firing of Senior Management – Advice, Mentoring and Crisis Management – Networking with Customers, Suppliers, etc – Managing Support Functions Through Shared Services – Additional Fundraising with other Investors – Exit Planning: IPOs, Acquisitions, Closures Bhavesh Singhi
  • 9. About The Fund • Investment Thesis • Target Industries • Target Corpus • Minimum Investment Size • Deployment Plan – For each industry, stage of portfolio company, funding round • Management Fee & Carried Interest • Fund Registration • LP Sourcing Avenues & Criteria Bhavesh Singhi
  • 10. Timelines & Progress So Far • Expected Fund Closure Date • Estimated Fund Deployment Timelines • Commitments Received, especially Brand Name LPs • Deals Identified • Monitoring Access Bhavesh Singhi
  • 11. Thank You Bhavesh Singhi May 13, 2018 Bhavesh Singhi