![]() ![]() With proper planning and setup, the internal finance function can be effectively managed and help drive greater returns, build trust with LPs, and increase the likelihood of successfully raising a follow-on fund. This can make the difference between flaming out and building a durable platform. that you can use to leverage your time and resources. Instead of trying to do everything yourself, spend time exploring external team resources - advisors, fund admins, experts, etc. But don’t despair! Since the market for emerging VCs has grown, an ecosystem of service providers has evolved with it, and continues to do so. You still need to spend money to leverage your time so you can continue to make your LPs and portfolio companies successfulĪdopt a “team-building” mindset : Emerging micro-VCs are notoriously under-resourced, and under-staffed. Trial and error can be expensive, so try to minimize it: You can avoid blowing your budget on unknown unknowns by leveraging open resources like our Model Template and blog, Oper8r’s insights, Vela Wood’s Venture Glossaryĭon’t obsess over cutting costs : Spending is not always your enemy. Talk to at least three different vendors in a category before moving forward to understand differences and drive best pricing and don’t forget to ask fellow emerging VCs what’s working for them As a former LP investor and CFO, here’s my advice to emerging VCs:Ĭreate and manage a budget that fits your strategy : We often hear from emerging VC’s that have already spent five figures for “advice” from professional service providers. ![]() Starting your own fund as an emerging VC is an exciting time - enjoy it and be proud of all that you’ve done to get here. So it’s like being the CEO of a startup, right? You can burn equity capital on all sorts of expenses, but that reduces the amount of capital you have available to actually generate revenue and growth for the firm. Demonstrated experience effectively managing expenses should increase the likelihood of LP commitments to future funds. LPs look at this expense ratio to ensure the maximum amount of their committed capital goes towards fund investments. Returns from investments and ultimately carried interest should be the larger, more meaningful driver of returns for the GP.Ī VC’s ability to manage these expenses will be of value in future funds. Generally, LPs prefer that VCs use management company revenue to invest in their team and resources, instead of generating large profits for the GP. Sophisticated LPs often ask to see an example budget to understand how a VC is operating. Conversely, keeping fund expenses at a reasonable level can enhance your returns and measured performance. If a VC can charge certain expenses to the fund, what motivates them to cut costs?Ĭharging expenses to the fund means drawing down from the amount of committed capital from investors, which will reduce net returns to investors. ![]() However, they do reduce net returns to investors, so managing prudently is important. These expenses are paid by the fund, not the management company, so they don’t impact the management company budget. Other operating expenses like legal, tax, and other professional services can vary, depending on market and level of expertise.įund expenses are related to the fund and portfolio companies, such as fund administration, fund audit & tax, travel & entertainment related to acquisition, disposition, and holding of fund investments. Salaries & benefits are most predictable as they’re driven by market rates. These are paid for by the management company. Management Company expenses are required to “run the business,” such as salaries & benefits, your VC tech stack, and operating expenses. ![]() These expenses are typically paid for by the investors in the fund. These are typically capped at a fixed dollar amount, depending on the strategy and investors. Organizational expenses are associated with forming the fund (legal, accounting, setup, organizational, marketing, etc.). Expenses usually fall into one of three categories: Organizational, Management Company, and Fund. ![]()
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