How to Raise a Venture Fund as a First-Time VC Fund Manager

So you want to manage a VC fund. The first question Samir Kaji wants to ask you is Are you sure?

It’s not a statement meant to gatekeep VC, but rather to acknowledge the difficulties that come with starting out in venture capital.

Seasons come and go where it becomes in vogue to be a fund manager. As much as it might look like a “get rich quick” scheme when the market is hot, it’s really a “get rich slowly over time if you put in the work” plan.

Samir has seen several such seasons. After 22 years in venture banking, he founded Allocate, a private markets company that makes it easier for investors to responsibly invest in VC. Allocate’s tools for fund managers streamline the multiple admin portals and interpret data to make understanding your portfolio’s performance simpler.

With his finger on the pulse of what starting VCs need to know, Samir shared with us a six-point plan for how to raise a VC fund.

Do you want to become a venture fund manager?

Before you raise your first VC fund, Samir finds it important to determine whether you’re a first-time fund or a first-time fund manager. For the former, often an individual will leave a large financial institution to manage their own fund. Because of their relationships and connections, these people will have an easier time raising their first fund.

Much of Samir’s advice is for the latter category: first-time fund managers. These are accredited investors who haven’t necessarily managed a fund in the past. They might not have years of experience at a financial institution, but rather a deep knowledge or interest in a specific industry (more on that later). While raising a first-time fund is more challenging for a first-time fund manager, it’s not impossible—as long as you maintain a grip on reality.

Becoming a fund manager isn’t something you jump into and do for a year or two; it’s the long game. “It's not that glamorous,” Samir says. “Do you really want to be, effectively, a money manager? And do you want to do this for 20 or 30 years? That's the opportunity cost.”

And it’s not a matter of being one and done. An institutional investor is going to be looking for staying power, and not someone who’s just doing one fund and bowing out. As a successful VC, you’ll have multiple funds in your portfolio, and that will be a signal to investors that you’re in it for the long haul.

Six steps to raising your first venture fund

1. Stay in your lane

Trends will come and go, but you need to figure out the niche that appeals most to you. It could be an industry that plays to your specific knowledge or skill set, or your unique strengths.

“It doesn't matter what other people are doing or where the hot areas are,” Samir shares. “You have a unique thesis when it comes to sourcing, picking, winning, and helping companies. That's where you have to lean into.” For example, crypto might be hot at the moment, but if you’re a manufacturing expert, consider making that your niche.

2. Size doesn’t matter

Emerging VC managers might sweat how big their first fund is, but Samir doesn’t think that should be the focus. Most first funds are less than $10 million.

It’s better to have a smaller fund, deploy it, and come back to the market with a success story than to wait for the perfect big fund ship to come in. “Similar to a company, the seed round is always the smallest turn,” he says. “Then you raise a bigger Series A and Series B, as long as it gives you enough capital to sustain yourself.”

Samir boils it down to this advice: “Stay small, stay authentic.”

3. Use a wide funnel

So, who do you even ask to contribute to your first fund? The first place to look is in your inner circle: friends and family. Then, expand to other contacts in the industry who might be looking to capitalize on their knowledge of the market trends. It’s even better if you can find some GPs that specialize in your industry.

“Funds that are larger will invest in emerging managers as a way to gather deal flow and be a support chat,” Samir explains.

The more GPs and funds that support you, the more momentum you’ll get, obtaining intros to other connections. There are also conferences, like Raise, where you can meet lots of interested investors. And don’t underestimate what flexing your knowledge on X (formerly Twitter) or LinkedIn can do to increase your visibility. Establishing yourself as an authority on the industry will build faith in your abilities as a fund manager.

4. Don’t sweat closing the round

Samir gives an example: If you’re raising an $8 million fund, and you have $4 million, you don’t have to close the round before you start deploying funds. You can do a first class of the fund and start doing deals to get traction and proof of concept.

That's because it’s better to get going than to wait for the perfect moment or dollar amount to come in. Anyone who’s been considering investing will appreciate the work you’re putting in.

5. Brace yourself for the first round

How long can a first-time fund manager expect the first round to take? Samir says six to 12 months. Why? The first raise is always the hardest for most people. Since you don’t have an established reputation, you have stiff competition in the form of other funds and other asset classes.

“You should always think about six to 12 months, because most people right now don't have money burning a hole in their pocket to invest,” he explains. “So it's not just getting somebody to like you, but why are they going to invest in you?”

6. If things are looking down, stand solid

Samir says if 2024 appears to be a bad time to join the market because of political, geopolitical, and other types of unpredictability, it may not be as bad as it looks. “All of that is working as headwinds, but I will say that there is capital out there," he says. "There are people that believe, I think correctly, that this time is one of the most interesting times we've seen to invest in the asset category." The key? Show that you’re the right manager for the category. If you are seen as uniquely positioned to succeed in your category, people will believe in you.

Samir also follows Warren Buffett’s classic advice: “Be fearful when others are greedy and greedy when others are fearful.” In other words, even though the market is not now as hot as it was in 2021, it can still be a good time to get off the ground. And with Samir’s tips in hand, you’ll have a jump start on getting a leg up.