This is part of an ongoing series about how to break into early-stage startup investing, and laying the groundwork to launching a venture fund. Start from the beginning by reading the first foundation article here.
If you’re getting started as an early-stage investor in your own local startup ecosystem, consider becoming a Founder Institute program leader.
The operations of all businesses determine how smoothly and efficiently they run, and like any business, an investment fund has a lot of intricate moving parts, as well as checks and balances to ensure the best for entrepreneurs and a fiduciary duty to investors. Establishing the operational foundation of the fund will yield a company that draws the attention of credible investors, builds credibility with all those involved, and covers the basic overhead, too.
Ultimately, it all officially starts with a name.
Branding a Startup Venture Fund
Credibility and trust are among two of the most important components of a newly launched venture fund, but both are hard to establish. Calling it Bill’s Awesome Fund is not likely to net you any viable investors; however, the Awesome Foundation, if designed to be awesome, could. In fact, there is a small fund named as such, which offers $1,000 grants with zero strings attached. That is pretty awesome.
As a newly launching VC fund, a good jumping-off point for naming it would be to look at the naming conventions of those successfully running now. From the Andreessen Horowitzs to the Fidelity Ventures, most established funds offer a simple, yet professional name.
With a name in place, it’s time to start building out your basic branding based on your already built strategy. This would include who your fund is designed to support, why you are launching it, and any long-term vision you may have over the next decade. Congratulations, you are now branded. From here, launch a basic website, get some letterheads, maybe a custom email domain, and you’re in business. Next, and quite possibly the most important initial operational challenge, will be to define the team and everyone’s responsibilities.
Define the Founding Team and Responsibilities
On paper, determining who does what and who will sit on necessary boards is a simple task. This process is akin to the same level of simplicity you find when having to build out a table seating arrangement. At the top, many VC funds have one or two partners. The decision making stems from here, is then collaborated on by a board of directors, and is then disseminated downward until a task is executed and reported on.
The following is a basic list of the initial roles, some of which can be multitasked, which are necessary for a fund’s operations:
- Build a board of directors
- Build a board of advisors
- Select who is in charge of compliance
- Select who is in charge of operations
- Select a law firm or bring in a lawyer
- Select an outside accounting firm or bring in an accountant/CFO
Once these roles are determined, it’s time to ensure that everyone knows what they own. In addition to that, there are some aspects of your fund that will dictate how much involvement occurs. For example, some funds are relatively hands-on, others are more hands-off. If you develop a board of advisors, at times it makes sense to offer support to the entrepreneurs that the fund invests in. These elements don’t have to be laid out on paper, but eventually, it will be a discussion point when startups seek out your financing.
Lastly, don’t allow a chokepoint to occur on reviewing pitches and proposals. As a fund, there will be near countless pitches, and the more accessible you make the process, the more you’ll receive. Build a simple process where others can get into the mix and share their thoughts, attend pitching and networking events, and coffee meetings are all but expected.
Once the operations have been laid out, you need a place to get work done. Even if the fund starts off as a part-time run program, physical space is important. This is especially true if offering more of a hands-on advisory role to entrepreneurs or having some form of an accelerator to kick things off. Fortunately, organizations like Founder Institute can provide guidance on both the operations and overhead needed to get a fund off the ground. For those looking for some DIY, you’ll need:
- Identify office space
- Early expenditures covered by the closed fund
- Cost of new hires
- Management fee, if any, for the fund
- Cost of a website and marketing materials
With operations in check, the next step is to legalize everything.
If you’re getting started as an early-stage investor in your own local startup ecosystem, visit fi.co/lead to learn more about becoming a Founder Institute program leader.
Local Leaders join a team of 2-4 others, who together run the Founder Institute core program with FI HQ's 24/7 support, tools, and curriculum. You will play a central role in shaping your own startup community, share in the value of the companies created, and join the FI global network of entrepreneurial leaders.
Graduates of the Founder Institute are creating some of the world's fastest growing startups, having raised over $900M in funding, and building products people love across over 185 cities worldwide.