How to Raise Capital for Funds, From a VC

When it comes to raising capital for VC investments, entrepreneurs will generally receive capital through one of two primary avenues; direct investments from a VC’s own capital, or from a fund.

What most entrepreneurs don’t realize, however, is that raising capital for an investment fund as a VC is one of the most challenging and tasking parts of being a venture capitalist.

It takes a certain degree of skill, as well as a strong capability for networking and building relationships with other VC, in order for an investment fund to gain the necessary attention from the right investors.

For over 15 years, I have honed my knowledge and skill set as a coach and mentor to hundreds of businesses and startup ventures, as well as an investor to dozens of additional companies and VC funds throughout the United States. As a result of my experience, I have been able to hone my abilities as a venture capitalist and have helped to fundraise millions of dollars for a broad array of VC funds targeting the retail tech, medtech, consumer goods, and restaurant industries.

In this article, I want to help highlight the skills and abilities you will need as a venture capitalist or investor to help raise capital for a VC fund.

scaLE To a LEvEL whErE vc FUnDraisinG is nEcEssarY

First things first: before you begin attempting to raise capital for a VC fund, you need to ensure that you — as an investor — are prepared for the challenges and hurdles that come with fundraising. Depending on your firm, along with any firms or Limited Partners (LPs) you or your firm are partnered with, you will likely need to give those LPs or other partners anywhere from 90-180 days’ (or 3-6 months) notice of your fundraising initiatives. From there, you will need to prepare material and data to present to your partners so that they can perform their due diligence.

Once the official fundraising begins, expect for it to take anywhere from a few weeks to a few months to finalize. This time frame also depends on the type of fund you plan to raise. Newer funds often take longer to raise capital than those with proven successes in the past. If your fund is newer and doesn’t yet pos-

sess this track record, expect to hear “no” a lot from other investors, VCs, LPs, and general partners (GPs) you pitch the fund to, and be prepared to deploy a greater portion of your own capital in order to raise the funds you need to. If you cross-analyze the fund’s finances and realize that you’ll need to deploy a significant amount of your own capital in the fundraising process, you may not have scaled to a high enough level where VC fundraising is needed yet.

BUiLD YoUr nETwork anD FinD ThE riGhT invEsTors For YoUr FUnD

My second piece of advice is this: network, network, network, and then network some more.

Most of us are familiar with the old adage, “it’s about who you know, not about what you know.” This saying could not hold more true in the realm of VC fundraising if it tried. For VCs and investors who are relatively new to fundraising, you should expect to make dozens of new connections (if not more) with potential investors, LPs, and/or GPs each week prior to and during the fundraising process. One common mistake newer investors and VCs make when networking is that they tend to immediately want to target larger and more established institutional investors and partners. While the draw of these larger investors is obvious, you shouldn’t overlook the potential value and ROI of networking with lessinstitutionalized individual investors and smaller corporate offices.

Think of this step as raising funds for a new startup: if you’re early on in the fundraising process, you would want to focus more on finding angel investors rather than larger, more established VCs. If your fund is newer and less established, you want to ensure that you focus your time and efforts on meeting and building relationships with those who are most likely to invest in your fund now—not 5 or 10 years down the road.

BE aBLE To EFFiciEnTLY (anD EFFEcTivELY) nEGoTiaTE wiTh invEsTors

The final piece of advice I want to bestow in this article is knowing how to negotiate with the investors you pitch your fund to. By this point, you should have

Prior to any sort of negotiation taking place, it’s paramount that some level of mutual trust has been established between you and the investor(s) your fund is pitched to.

a clearer idea of which types or demographics of investors you want to pitch. If you have already met with these individuals or partners, at least a handful of them should be qualified using your fund’s investment criteria, and you should have a better understanding of what they are looking for when investing in a fund.

For those investors who are looking to sign smaller checks for your fund, typically only 2-3 meetings need to happen before a decision is made on their end. If your fund needs larger amounts of capital investiture, however, consider the benefits and downsides of potentially having to wait longer for them to make a decision. Whatever the case, be prepared to negotiate on the amount they wish to invest, what (and/or how much) they expect in return, as well as the specific terms of their investment.

Prior to any sort of negotiation taking place, it’s paramount that some level of mutual trust has been established between you and the investor(s) your fund is pitched to. Without that, your deal is bound to fall through before it even begins. When it comes time to negotiate dollar amounts and terms, it can be easy to become bogged down by sheer numbers, but numbers are only part of the puzzle. If you can clearly communicate the value and ROI of investing in your fund outside of dollars and cents, you create more leverage for yourself at the negotiation table. deal possible when raising capital for your fund, no matter how new or established that fund may be.

Diane Yoo is a results-driven entrepreneur and venture capitalist with more than 15+ years of experience. As an accredited investor, she has invested in 35+ companies with a focus on diverse founders. She created 15 funds in the last year alone and is in the 1% of Asian-American female founders who are also a partner. Diane has founded angel networks, venture funds, and investment networks. She is Founding Partner for a Medtech and Healthtech venture capital firm in partnership with the largest medical center of the world. With VC and accelerator expertise, she works extensively with over 700+ global companies and her firm has deployed significant capital into the startup ecosystem. 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. She is also an investment partner to several Silicon Valley funds including the largest women’s fund and the first FemTech fund in the nation.

Diane is also mentor/partner to Global Venture Accelerator, a Rice University initiative. She serves as mentor/judge to Rice Business Plan Challenge, Rice University’s 48 Hr Accelerator, Gener8tor, Brandery, and Mass Challenge. She sits on numerous boards and advises other venture capital funds, diversity funds, and the largest women’s fund in Texas. Diane was awarded “Diane Yoo Day” on August 26th for her international achievements in diversity leadership. She received her MBA from Jesse H. Jones School of Business at Rice University.

https://www.dianesyoo.com/

https://www.identityunveiled.org/

https://www.globalsheventures.com/

https://www.parliament-ventures.com/

Otter PR 6.18.21

Growing up as a second generation Korean American with immigrant parents, I lived in a one bedroom apartment with newspaper as our furniture and a car that would occasionally choke start. My parents worked 5 jobs and my father ate salt cubes just to keep up with all the manual labor. He endured racial discrimination and fought off bullies as he was working only to put a roof over his family’s head. I grew up in a predominantly white neighborhood where I constantly struggled with my cultural identity and experienced bullying. The first time I ever felt like I belonged was when I was an exchange student in Korea. That summer was eye opening. I looked around and everyone around looked like me and smelled like me, and finally for the first time I felt a sigh of relief. Such tumultuous times forged my trailblazing impact in the world of VC. I aim to support underserved women and diverse talent, so they don’t have to hesitate when an opportunity because they feel like they don’t belong there. You belong there; take full command. When you get a seat at the table, pull the chair out next to you for others to come.

Lastly, and perhaps most importantly, I always recommend having a knowledgeable and experienced business lawyer on your side; preferably one with prior experience in VC and investing, as well. They will help guide you through the negotiation process as well as help ensure that you are getting the best