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4. The "minimum viable fund size" is the smallest capital to execute a GP's fund strategy.
In today’s incredibly challenging VC fundraising environment, in particular for new and emerging VC GPs (raising from Fund Is to Fund IIIs), every manager needs to truly understand this concept of “MVFS”. This is not about hitting an exact number, but rather identifying a range representing the minimum amount a GP needs to raise, to be able to execute their business model and thesis.
It is more critical than ever due to several things:
This is arguably the hardest fund raise environment we have seen for VC funds maybe ever, according to the industry. For first-time managers, raising any significant capital can take 12 to 18 months. Managers must be realistic about what is genuinely possible.
It can be tempting to abandon a portfolio strategy if ideal fundraising targets are not met. However, focusing on the MVFS ensures GPs can adhere to their proposed strategy. It is about strategy integrity.
Small, on-the-margin adjustments are acceptable, but radical shifts are not accepted by LPs who may call you out because of strategy drift. For instance, the “follow-on reserves” are not your fund buffer. As a GP, you cannot for instance say “if I raise my target size of $35m, I’ll have a 50% reserve strategy, but if I raise only $20m, I won’t set aside any reserves”.
Such significant deviations, as drastically reducing reserves from 50% to zero, fundamentally change the business model.
This minimum viable fund size must allow the GP to generate enough proof points to demonstrate proficiency in at least two of the three core components of VC fund management: sourcing, picking, and winning. This is foundational for a successful subsequent fundraise, like moving from Fund I to Fund II.
For new and emerging VC GPs, the “minimum viable fund size” is the smallest capital to execute a fund strategy and is the best “on paper” demonstration of being cognizant about their industry dynamics.
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit verticescapital.substack.com
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By Vertices CapitalIn today’s incredibly challenging VC fundraising environment, in particular for new and emerging VC GPs (raising from Fund Is to Fund IIIs), every manager needs to truly understand this concept of “MVFS”. This is not about hitting an exact number, but rather identifying a range representing the minimum amount a GP needs to raise, to be able to execute their business model and thesis.
It is more critical than ever due to several things:
This is arguably the hardest fund raise environment we have seen for VC funds maybe ever, according to the industry. For first-time managers, raising any significant capital can take 12 to 18 months. Managers must be realistic about what is genuinely possible.
It can be tempting to abandon a portfolio strategy if ideal fundraising targets are not met. However, focusing on the MVFS ensures GPs can adhere to their proposed strategy. It is about strategy integrity.
Small, on-the-margin adjustments are acceptable, but radical shifts are not accepted by LPs who may call you out because of strategy drift. For instance, the “follow-on reserves” are not your fund buffer. As a GP, you cannot for instance say “if I raise my target size of $35m, I’ll have a 50% reserve strategy, but if I raise only $20m, I won’t set aside any reserves”.
Such significant deviations, as drastically reducing reserves from 50% to zero, fundamentally change the business model.
This minimum viable fund size must allow the GP to generate enough proof points to demonstrate proficiency in at least two of the three core components of VC fund management: sourcing, picking, and winning. This is foundational for a successful subsequent fundraise, like moving from Fund I to Fund II.
For new and emerging VC GPs, the “minimum viable fund size” is the smallest capital to execute a fund strategy and is the best “on paper” demonstration of being cognizant about their industry dynamics.
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit verticescapital.substack.com