The initial 10 LPs are the hardest to secure for first-time fund managers. The strategy is to start with your inner circle, target family offices and HNWIs who are more open to emerging managers, and secure a credible Fund-of-Funds as an anchor LP to create momentum.
Who are the most likely LPs for a first-time fund manager?
Large institutions rarely back first-time funds. Emerging managers are the most successful with two specific groups of LPs:
- Your inner circle: The very first calls should be to your strongest existing relationships. This includes former colleagues, successful founders you’ve worked with or backed, and trusted mentors. They are investing in you as much as the fund thesis.
- Family offices and high-net-worth individuals (HNWIs): This LP segment is far more dynamic and opportunistic than institutions. They are often more willing to take a risk on a new manager with a compelling strategy and a demonstrable edge. Note that many UK family offices have pulled back from blind-pool funds recently, so be ready to offer co-investment rights alongside a fund commitment.
How does a first-time manager secure a critical “anchor” LP?
An anchor LP is a credible, often institutional, investor who makes an early, significant commitment. This is the single most important catalyst for a successful fundraise.
- Target Fund-of-Funds (FoFs): The best source for an anchor commitment is a respected venture Fund-of-Funds. Many have specific mandates to find and back the next generation of top-tier VCs.
- Key FoF targets: In the UK and Europe, key targets for emerging managers include British Patient Capital (BPC) and Isomer Capital. A commitment from them provides a powerful “stamp of approval.”
What is the step-by-step process for closing the first 10 LPs?
- Focus everything on the anchor. Secure a commitment from a respected FoF or a highly credible family office - this will send a strong signal to other LPs.
- Leverage the signalling effect. Once the anchor is in, immediately leverage their credibility. Announce the commitment (with their permission) to other potential LPs to signal that you have passed institutional due diligence.
- Use your network for warm intros. With momentum from the anchor, work through your network of connectors to get warm introductions to your target list of family offices and HNWIs.
- Create FOMO (Fear of Missing Out). Clearly communicate your fundraising timeline and progress. As you secure commitments, let other prospective LPs know that the round is filling up.
- Run a professional process. Even if you are a small team, run a highly organised process. Have a best-in-class data room, respond to questions quickly, and demonstrate that you are a professional manager.