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How to start VC Funds in Singapore?
Where does Lanturn’s knowledge come from?
Most of our client base is in the asset management and VC Funds space. As their corporate service provider, Lanturn gets the privilege to learn from some of the brightest minds in venture investing. Working with venture capitalists with an immense passion for nurturing and turning startups into the next unicorn is a pure pleasure for our team. Supporting these venture capital firms allows us to see the actual VC fund structure life cycles and VC funds structure of various VC funds. And it is usually not a bed of roses in reality. It is filled with ups and downs for any funds, be it a micro VC fund or corporate venture capital.
VC fund structure – The Common challenges
It is common that VC funds find it challenging to:
raise capital within a specified timeframe
get the fund up and running within the timeline for deployment
If you are a first-timer starting micro VC funds, it is very common that the full process takes 3 to 17 months. To avoid repeating the same mistakes of many VC managers, here are some tips from the top VC firms in Singapore:
A fundraising process and a fund pitch are similar to a sales process and sales pitch. The law of influence applies. People buy from those they know, LIKE, and trust. Therefore, even if it is cliche, the trust principle of likeability is effective in influencing your investors.
Although warm introductions and building likeability get you closer to the first check, it is not all. Knowing how to pitch smartly is also very important. This means, your pitch should focus on demonstrating:
sectoral strengths (example – deeptech, Edtech, FinTech)
compelling investment thesis aimed at the correct audience
Having these will help you distinguish your venture capital fund from the rest. Because the fundraising process is hardly smooth sailing, it is good practice to set and manage the right expectations for yourself and not expect a yes from any first meetings. The reason is no LPs will want to be the first anchor.
While you can try casting the net wide by setting a target number of LP meetings you want to achieve, don’t overshoot it. As the correlation between the number of LP meetings you have and the amount you raise is very weak. Instead, you can try getting your LPs engaged early by offering a rolling close.
One of the best practices we see from the top VCs is leveraging great technologies to extract the greatest value from their network, instead of throwing themselves into complex excel sheets.
First thing first – building a strong foundation
Just like the classic project management triangle, it is impossible to have all three – cost, time, and quality in a single setting. Knowing your trade tools Starting a VC fund is not like buying a one-off grocery product off the shelf. It takes significant time and effort in gaining the trust of your LPs who are committing a larger check size without having concrete details on your proposed targets. The investment thesis and track record of your VC firms and funds become your only trade tools.
What if you are a first-timer, where you have left your corporate venture capital, hoping to start your own VC funds firm? What and how can you showcase your track record? Building your brand with SPV If you are a principal or associate who established good branding from your prior VC employer, a great way to build your own track record with LPs is through an SPV (deal-by-deal) arrangement.
Once you gather trust and a consistent deal record, the SPVs can lead to a larger fund. And therefore, you start building your very own brand and network with the LPs.
Be cost-conscious of VC funds
The simplest approach is to apply the “2 and 20” rule. Where you receive 20% as carrying interest and 2% as a management fee. Appropriate fee structure for LPs However, this might not sit well with LPs especially if you are a first-timer. The reason is, many LPs are very cost-conscious and they will try to squeeze the fee structure whenever possible. Some VCs counter this by purposely setting a higher fee structure, to create room for negotiation.
Therefore, be prepared to spend time negotiating this as striking a balance and ensuring you have enough funds for your bills will be a challenge. To ensure sufficient room for negotiations, it is a good practice to think about the optimal cost structures. Areas that have the most impact on your fund IRR are the initial legal cost and ongoing costs.
Therefore, having a cost-effective legal provider and fund administrators is vital in helping you to secure your LPs. If you are looking for ways to lower your ongoing fund costs and pick up tips from other experienced VCs, speak to our fund experts now!
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