Quick snippets from our morning read on Monday, 3rd May 2021
Over time, we have shared content on raising capital for business. This is a topic we can never exhaust and in today’s morning read, we look at How to start an Africa focused Venture Capital fund. We focus on the portion of the article that looks at the fund managers.
Key decisions for first time fund managers :
- Time commitment : a typical fund is a 10 year commitment, if you don’t enjoy this process don’t waste your time or anybody else’s time for that matter. Even though everyone wants to start a fund, it is not for everyone and just like startups the failure rate is pretty high, the vast majority of first time managers don’t raise second or third funds.
- Deal sizes : As a fund you have to decide which segment of the market best suits your skill set and style of operation. It can be seed,seriesA or if you have a larger fund B or C.
- Thesis of the fund : in this business you get paid for your results ,having a unique thesis is what sets your fund apart from the rest so the 2% management fees is purely survival money to pay rent, office, travel and perhaps cover your phone bills in order to execute your thesis. The rest is a pure hustle.
- Location: Most Africa focused funds are registered in either Mauritius or Luxembourg but that depends on where your investors are. Some are also domiciled in the US.
- Not a get rich quick scheme : Let’s assume you raise a $2.5M to do $75K-120k deals and you are lucky to return 3x of your fund ie $7.5M. That works out to be $2.5M * 20% + $2.5M * 30% = $1.25M. Let’s assume you have 2 people that’s $620k, and divided by 10 years, that’s $62k/year. Some jobs can pay you more than THIS just being an executive. In venture you don’t get paid for 10 years.
- Return capital: this is the most important decisions of all because it allows you to stay in the game.
- The power of trusted networks: it literally takes a village of other trusted associates and VCs to raise a fund. I have previously written about this need for us to create trusted networks.
You can read the broader article here.
And as always, if you enjoyed this, check out the rest of our daily snippets, curated daily, right here on The Red Notebook.
