TBC: GPs Have Trouble Raising Too

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Hello, welcome to another episode of the back channel and today's episode. I want to talk a little bit about not startup fundraising. But actually fundraising for funds. Okay. So let me take a step back. I've talked about fundraising for the last four years with you all. And it's always been focused on how startups raise capital from venture capitalists. but as a startup founder, did you know that those people, that you raise money from those venture capitalists?

Well, they have to raise money to. The money that they invest in you out of a venture capital firm, most likely is not their own money. They are raising from what are called limited partners or LPs to put into their fund. And then [00:01:00] diversify those dollars across a bunch of different startup bets. Hopefully one of them is yours. All right.

So you're not the only one fundraising. which is an interesting concept to think about these guys are also raising capital, so they understand what you're going through or do they. So the funny thing. That I've noticed is that GPS. When they are looking at their. Portfolio companies and advising them.

They know exactly what to tell their founders. How to raise capital what to do. How many people to talk to how much effort to put into it? It's a lot of work and they have to push their founders to do the right thing. But what I've seen recently is that when it comes time for them to go fundraise, I see a lot of them. Skirting the same work that they push their founders to do because you know what, it's not very fun. It's time consuming.

It's mind numbing. And they have other things. They would rather be doing things that feel really [00:02:00] important. Now. The thing that I'm going to underline here. Just as a message to all the GPS out there. Is that the thing that is going to kill you faster than doing a bad deal? Honestly. Is not raising capital the right way. The crazy thing about raising capital for fund managers, especially small fund managers you know those fund managers of sub hundred million dollar funds. Is that they gotta be doing it. 24/7 365, but because they're small. Because they don't have tons of management fees because they don't have lots of partners. They would have to do it mostly themselves. And so there's this trade off that they're deciding between.

Do I keep doing the thing that I started my fund in order to do, which is work with founders, find deals. Or do I spend the time raising capital, which for most GPS, for most fund managers is not very fun.

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[00:03:00] [00:04:00] So the message that I want to put out there for all my VC buddies out there is that you might've heard this narrative, that the era of the solo GP. Is coming to an end that LPs fund of funds family office is no longer like emerging managers or small fund managers. And that they're dying out because of this.

I don't actually think that's the right narrative. I actually think. They are still interested. In small funds and emerging managers. It's just that it takes a long time to get them over the edge. Now pre 2021. Fundraising took a long time. the rise of the solo GP and the small fund at phenomenon. I came because of the ZIRP era. With zero interest rate policies.

There is so much more money to go out [00:05:00] there that family offices fund to funds LPs of different types. We're putting money to work And seeding. Small funds with their first funds. They were able to raise five 20, $30 million funds pretty easily. And then they went from closing that capital to then deploying capital Spending a hundred percent of their time. On finding new deals. What they didn't realize is that this whole time they should have been raising for their next fund. The sales cycle for these investors is long.

It's at least a year long for most fund to funds. For most LPs, for people that are investing in these funds, You need to create relationships. You need to get them comfortable with who you are with what your strategy is. And that takes time. So my message to everyone out there is maybe you're not close to finishing out this fund, or maybe you think your next fund is re relatively far away. Whenever that might be. It could [00:06:00] be coming up in two days or you might've just closed your last fund two days ago. In either case, especially if you're a small fund. And emerging manager. Start fundraising today. Start finding LPs that you want to build relationships with and start finding reasons to get in touch with them. This is my message to fund managers out there.

And maybe if you're a startup founder, you can. Gain some small bit of satisfaction that I am this time, lecturing, VCs on what they need to be doing. Not you all. Okay. I hope all of you are successful in fundraising and that the content in the back channel helps you with this. So until next time, I'll see you on the back channel.

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