Raising a VC Fund in 2024: Strategies, Challenges, and Opportunities
A few days ago, I had the pleasure of moderating a roundtable discussion at the Mashup conference in Malmö, focusing on “How to Raise a Fund in 2024.” The energy was high, and the room was filled with experienced Venture Capitalists (VCs) and Limited Partners (LPs), all eager to share their strategies for navigating the current fundraising landscape. In this article, I’ll discuss the key takeaways and most valuable insights from our discussion. So, grab your drink of choice, settle in, and get ready to dive into some essential knowledge that will help you navigate the ever-evolving world of venture capital.
Mastering the Art of Fundraising: The 4 Ts Framework
Our conversation focused on the essential elements VCs need to master to raise a fund successfully in today’s climate. The discussion led to a spirited debate, with participants arguing for the factors they believed were most critical based on their experiences and perspectives.
At Mountside, we look at funds using the “4 Ts” framework:
- Thesis — A well-defined thesis provides clarity and focus to the fund’s investment strategy, outlining target sectors, stages, geographies, and unique value propositions. It helps attract aligned investors and differentiate the fund from competitors. Example: Targeting healthcare startups using AI to improve patient outcomes
- Track record — A proven track record demonstrates the fund manager’s ability to identify, invest in, and support successful companies. It showcases investment acumen, risk management, and ability to generate strong returns, building trust with investors. Example: An investment team with a history of backing unicorn healthcare companies
- Team — A high-quality team with relevant experience, skills, and networks is crucial for executing the fund’s thesis and supporting portfolio companies. Investors seek teams with complementary skills, strong collaboration, and industry connections. Example: A fund manager with a strong network in the healthcare industry
- Terms — Attractive and competitive fund terms, such as management fees, carried interest, and co-investment rights, align the interests of the fund manager and investors. Fair and transparent terms build trust and long-term partnerships. Example: 2% management fee, 20% carried interest, and co-investment rights for key investors
LPs agreed that a solid track record is the most important factor when evaluating funds, followed by the fund’s investment thesis and reputation.
For emerging managers (first-time or spin-out venture capital fund managers), the two key LP groups to target are Fund of Funds (FoFs), including government entities, and Family Offices (FOs). Targeting these LP segments can help new VCs establish themselves in the competitive fundraising landscape.
The Great Timing Debate: When to Strike and When to Wait
The optimal timing for VCs to raise funds was a heavily debated topic during our roundtable. Participants discussed whether VCs should raise funds now while competition is low or wait until market conditions improve.
The general consensus was that VCs with a unique edge and track record should strike now while competition is thin. However, those still refining their thesis or lacking proof points may benefit from waiting until their case is strong. LP allocations may be limited in the near term, so patience could be advantageous.
As highlighted in our “Capital Behind Venture Report,” LPs want to understand intimately how VCs invest and how they do business in general. Building a strong relationship is crucial, as evidenced by the fact that only 20% of respondents had invested in a fund which they’d known for less than a year, with over 50% taking one to two years to build the relationship, and 30% more than two years. This underscores the importance of VCs proactively cultivating relationships with LPs well in advance of a fundraise. By taking the time to build trust, transparency, and a deep understanding of each other’s investment philosophies, VCs can lay the groundwork for a successful partnership when the time is right to raise their fund.
Navigating the Obstacles and Seizing the Opportunities
Raising a VC fund in today’s market is challenging. Our roundtable participants discussed the common hurdles they’ve faced.
Fundraising fatigue and increased scepticism from LPs were common themes, primarily due to the market corrections of 2022–2023. LPs are more cautious, focusing on track records, niche areas, and investment discipline.
The fundraising landscape is divided. Well-established funds continue to attract capital easily, while first-time managers, spin-outs, and some previously backed teams face a more challenging environment.
However, the current landscape also presents opportunities. LPs are focusing more on Environmental, Social and Governance (ESG), responsible investing, and diverse manager programmes. AI and machine learning are being used in innovative ways for deal sourcing, due diligence, and portfolio monitoring.
Adapting to the changing landscape requires flexibility, resilience, and awareness of industry trends. As one participant noted, “While the landscape has evolved, building strong relationships and delivering value remain constant.”
Despite the challenges, there are reasons to be optimistic about the future of venture capital. Success will depend on embracing change and capitalising on opportunities.
Key Takeaways and the Path Forward
The roundtable discussion at Mashup emphasised the challenges and opportunities in raising a venture fund in the current market. LPs are more discerning, focusing on track records, specialisation, and disciplined investment practices. Emerging managers need a clear edge, a compelling thesis, and a strong team to navigate the fundraising landscape successfully.
Transparency and relationship-building with LPs are essential. As one participant said, “Reach out. Unless a fund is completely off strategy for us, we will always take a call. We are in a people business, and the only way to make sound investment decisions is by meeting with people.”
Fostering Connectivity: Mountside Ventures’ Mission
At Mountside Ventures, we’ve been addressing the need for greater connectivity between LPs and VCs in Europe through our flagship LP event, the Funding Venture Conference. By bringing together 20 of the best European emerging VCs and over 100 Family Offices and Limited Partners, our goal is to cultivate meaningful relationships and provide a platform for exchanging insights and best practices.
If you are a VC or LP and are interested in participating in our conference, staying informed about future events, surveys, reports then please join our community (here for VCs, and here for LPs). Reach out to me at sofia@mountsideventures.com if you have any questions or want to have a chat.
I’d like to express my gratitude to all the participants of the “How to Raise a Fund in 2024” roundtable for their invaluable contributions and open sharing. As the venture capital landscape continues to evolve, it’s through open discussions like these that we can collectively navigate the challenges and seize the opportunities that lie ahead.
