We just closed our first Fund as a VC firm— here are the lessons we learned while fundraising
Visible Hands, a pre-seed venture fund focused on underrepresented founders, has closed its first round of funding at $10.5 million.
Starting in the Summer of 2020, the three of us — Daniel Acheampong, Justin Kang, and Yasmin Cruz Ferrine — founded Visible Hands knowing that there is something structurally wrong when 70% of the U.S. population receives less than 10% of U.S. VC funding.
We saw an enormous missed market opportunity and wanted to be a part of catalyzing change. Instead of relying on unseen market forces, we decided to take matters into our own hands. We built Visible Hands, a venture capital firm with an accelerator program providing meaningful funding, personalized company-building support, and access to amazing networks to overlooked talent in the early-stage venture ecosystem.
It is with humility and gratitude that we hit our inaugural fund milestone of $10.5M. We are reflecting on our capital-raising journey and sharing some lessons learned. We can share our origin partnership story at another time, but we would be remiss to exclude how intertwined and foundational a strong partnership is when deciding to launch a fund, essentially a startup.
The startup costs are expensive. We didn’t pay ourselves for over a year and relied on our savings as well as the kindness of loved ones. Therefore, one of the critical first steps in raising your Fund I is making sure that if you are going to take a leap of faith, you are doing it within the confines of a trusted partnership.
In VC, you are on the job for a long time before you have any real indicators that you have been adequately distributing your time and capital to the right buckets, in the proportions that matter to align towards building out a winning portfolio. In the earliest days as a General Partner, your investors are betting on the team. You are betting any remnant of certainty on this team.
We raised $10.5M from 67 Limited Partners (LP) in 411 meetings in 18 months, excluding one 12-week span of maternity leave. One sentence cannot adequately convey the amount of teamwork needed to facilitate a successful outcome and gratitude for the 6 institutions and 61 high-net-worth individuals and families that believe in us. See our press release for disclosed LPs and more context.
Lessons Learned While Raising for Fund 1
Only a small percentage of emerging fund managers close their Fund I at their original target. A tinier percentage of women of color have ever raised a VC fund of any size. As change agents, we write this to inspire many more emerging fund managers to build towards a dam breaking and opening up more inclusive economies. Some of these points may be obvious but are disproportionately critical to our success:
- Invest in your brand early. This means working with designers on all elements that build to cohesively convey who you are and what your contribution will add to the landscape. Do not conflate your audiences — your brand positioning to founders will not be your brand positioning to your investors. There are risks you should not take with your messaging tone, look and feel to your investors that are helpful to take with founders. This took shape in having a separate newsletter for LPs, LP prospects, and Advisors that is different from the newsletter to a broader audience of startup ecosystem friends and founders. A quick tip: archive all newsletters and include them in your data room.
- Accept hearing “no” and working with it. There will be certainty and things you can control like your execution, founding documents, vendor relationships, and a tech stack that suits your operational needs. Beyond the table stakes, you will have to embrace ambiguity and uncertainty daily. Buckle up and get ready to hear ‘no’ in longer or shorter forms. We always prefer a quick ‘no’ over a long ‘maybe’ any day.
- The process is paramount. Fundraising takes discipline and consistency. Our fundraising execution improved over time. At first, we relied on our personal networks for introductions and meetings. As our network expanded, we refined our process to set clear expectations, maintain frequent internal check-ins for accountability, ask LP prospects more upfront questions, and centralize all fundraising operations in one CRM. This allowed us to track data and glean lessons on how to iterate.
- Iterate and iterate again. We have done 100+ versions of the Fund pitch deck. We did what we now tell founders not to do before we started making investments. We talked too much about the problem we want to solve and not enough about our solution. With continuous improvement, we refined our pitch to better emphasize our competitive and collaborative advantages. There is also the reality of what your messaging will be before an anchor or first sizable close and how your messaging should be after those pieces are firmly in place. A best-case scenario is to soft circle a first sizable tranche and enter the market for investors. We fully comprehend the implied privilege of that possibility. Thanks to our institutional anchor, in-depth due diligence that included a lengthy questionnaire, legal, and operational review, other LPs felt more secure about the work done by a reputable and sophisticated investor.
- Everyone gets ghosted. This means some LP prospects may take a meeting and even verbally commit, but will not sign legal documents. Try to understand their decision-making process. If the excuses start rolling, the decision makers are unclear, and the timeline lingers, you may wake up in the middle of the night with a pit in your stomach. Be transparent internally and keep it moving.
- Patiently invest in people first. Relationships matter and take time to develop. There are investors who passed early on but came in twelve months later. This is not a marathon, this will be a multi-fund, ultra marathon. The average fundraiser takes 19 months for emerging managers.(First Republic, 2021.) Add the prospect to your LP newsletter to keep them informed. Keep following up with personalized updates. Some investors want to see the arch of who else comes in. Other investors want to be the first on the scene.
- To thine own target be true. Find a fund manager that has closed and ask them to push you on your portfolio construction–including check size, portfolio size, and ownership targets. Ask this mentor to find flaws in your dilution assumptions and flesh out some healthy naivete on current market valuations for your stage and graduation rates. All of these factors will help align to land on a fund target. We also take into consideration sizing up a conservative view on the likely financial capacity of our existing network to support that target. You could have the fanciest portfolio construction, but if you don’t have the network access to support the fund target then good luck. LP prospects will suggest you raise 2.5x or pick a round number from the sky. Stick to your portfolio construction and informed decision on fund size. Don’t make firm altering decisions based on flimsily and well-meaning suggestions from even sophisticated investors. There will also be many fund managers raising more or less than you. Run your race.
- You will need a power broker and credible thought leader who has seen the trajectory of your career. Embedded in our origin story is a notable VC and Startup professor at HBS in Boston, Jeff Bussgang. The seeds of possibility that our team could attract the capital, source deals, and stand up a strong investment process were planted first with the three partners. Shortly thereafter, Jeff Bussgang reinforced our collective decision to choose the emerging manager path with words of encouragement and a check as our first LP. Following a seed investment, mentorship from him and other members of the Flybridge team, and LP warm introductions, he served as a repeated reference check. Jeff and other advisors have played that role for us. We are grateful.
We shared these takeaways, hopeful that we will see a tipping point where the next generation of fund managers can build stronger and healthier ecosystems to invest in great founders. There’s always room for improvement. Get in touch with us if you have helpful feedback.
-Yasmin, Daniel, Justin