In Part 2 of this series, we continue looking at the logistical aspects of opening a Venture Capital firm. For Part 1, click here.
Find a Limited Partner
In the world of VC firms, limited partners are exactly what the name implies. They’re people with a large chunk of money to invest, but who don’t want to get caught up in having meetings with founders, evaluating companies, and anything else that falls under operations. Unless you are very rich, you will most likely look to raise money by partnering with one or more limited partners.
You can do this in several ways, but by far the easiest in is to look at people in your network. You may have connections to people you didn’t even know, through friends-of-friends, social clubs, or even former coworkers. Do some digging and find a few people who are good candidates to contact, and then do so. You may not hear back from all of them, but over time, you should be able to partner with at least one other person.
Of course, all of this depends on the prior point. Your investment portfolio should make you look like an attractive partner, and if it doesn’t, you may have a difficult time securing funds. If this is the case, go back and continue trying to build a more positive portfolio.
Furthermore, it’s also crucial to have an investing strategy that sets you apart to partners. Many people will choose to invest in fields they’re interested in or have expertise in. If you don’t have a clear niche, look at your portfolio carefully and create a narrative around it. Just be aware that however you pitch yourself is the way you’ll need to continue investing in the future. Don’t go back on your pitch, as your partners may become upset and cause issues for you. After you’ve secured at least one partner, you can then move onto one of the more tedious steps.
Hire Professionals to Help With Legalities
There are legal professionals who specifically work with Venture Capitalists, as compliance with laws is essential. Make hiring these people a top priority, so you can avoid fines, jail time, and all of the headaches that go along with noncompliance. The longer you wait, the more danger you put yourself in, and the higher the probability is of you getting caught doing something illegal. If you take care of these legalities, you may even be able to continue along this path long enough for the final step.
Continue Growing Your Firm
Some VCs prefer to work on a smaller scale, and that’s fine. It is likely, though, that you’ll consider hiring more up-and-coming Venture Capitalists at some point. Think back to when you met with the limited partners and evaluate potential hires in the same way. Look for intelligent, analytical people who have a similar strategy to yours, or who may bring expertise that you do not have. Above all else, make sure you trust their instincts. Evaluating people in-depth is not overkill; it’s a smart business move.
Starting a firm is not an easy feat, but it is possible to make it work. These steps will not guarantee success, but they can help guide your decisions along the way. If you are not comfortable with each of these steps, it’s probably wise to reconsider whether becoming a Venture Capitalist is right for you. Either way, be prepared for the risks that come with this field. You may just be one of the lucky people who make it work.