What the Fund? - Fund 101
March 21, 2023
4 min

The 4 life cycles of venture capital and private equity funds!

For fund managers starting their own funds or wanting to advance their funds, it's important to understand the fund life cycle of venture capital (VC) and private equity (PE) funds. From raising capital to existing investments, each fund goes through a distinct series of stages that can span over several years. In this blog post, we will dive into the fund life cycle of VC and PE funds, exploring each stage and the key considerations for you at every step of the way.

There are 4 stages that every fund goes through.

  • Fundraising
  • Investing
  • Managing
  • Exiting

Fast and digital fundraising

The first phase of the fund life cycle is fundraising. During this phase, you must find your unique selling proposition (USP) and market your fund based on that proposition. It's not enough to start yet another generic fund, especially in the current market environment. 

Investors are looking for unique opportunities and focus more on criteria beyond capital returns. Pitching your view on ESG, and how you plan to implement it, is more important than ever. It's so significant, that 52% of LPs want to link the compensation of fund managers to ESG goals (Source).

Once you have found your investors, offering a digital and lean subscription process can significantly streamline the fundraising process. With a scalable investor onboarding solution, you can not only raise capital faster, but also attract more investors with smaller investment amounts. This expands the potential market of investors and allows fund managers to implement more specialised fund structures.

The first closing is crucial, and attracting a large limited partner (LP) can help provide the momentum needed to successfully close your fund faster. If it's possible, it may make sense to make your first investments at this stage. This can help prove that you can follow your investment thesis and find the right companies.

Check out Vestlane`s solutions to help raise your next fund and get in touch, here!

Find the right investment

If your fund has closed and you have not yet made your first investment, now is the time to do so. At this stage, you need to focus on finding and investing in the right target companies. This may involve looking within your network for potential investments, subscribing to insight newsletters and analysing competitor deals.

You need to know what's going on in your market and where it's going. If you can't use your in-depth knowledge to find companies with the right solutions or identify growth trends, it will be very difficult for you to achieve the returns you've promised your investors.

Show your operational expertise

The management phase overlaps with the investment phase. During this phase, you need to focus on managing the investments you have made. The fund market becomes more competitive every year. With the last hype cycle, there are many new funds, creating a higher supply of money for potential investments. That's why it's no longer enough just to provide companies with capital. Startups in particular expect additional services that you can offer them in addition to your money. For emerging AI startups, this could mean leveraging potential connections with chip manufacturers to secure the necessary amount of chips needed to train new AI models.

Other possibilities include:

  • sharing operational know-how, 
  • helping them with hiring, 
  • or opening your network.

With PE funds, the management team is usually more experienced and the collaboration can be more hands-off. In comparison, VC funds often work with first-time founders and need to provide more hands-on support.

An important issue that many new fund managers forget is investor relations. Just as your portfolio companies report to you on a monthly or quarterly basis, you need to report to your LPs. While institutional investors may focus more on your KPIs, private investors may want to know more about your investments and how they fit into your thesis.

Always nurturing the relationship with your investors is one of the best ways to prepare for a new fund generation. 

Exit your investments the right way

The final phase of the fund life cycle is the exit. During this phase, the fund manager must focus on realising the value of their investments. The most common exit possibilities are:

  • taking the company public through an initial public offering (IPO), 
  • merging the company to a competitor, 
  • or selling the company to a strategic investor. 

The best case scenario is that you meet or exceed the promised performance. Once your fund has closed, or while it's still running, you have the opportunity to start your next fund.

Learn more about how Vestlane can support you in each fund life cycle stage, here!

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