Behind the scenes #3 | Why is the fund's lifecycle so important?
היJust as each year has its seasons, VCs also work in accordance with certain cycles. The more you understand this, the easier it will be for you to plan the process of fundraising without wasting your time on contacting those for whom an investing winter is about to begin. In “Behind the scenes”, we speak honestly and speak for ourselves, even if many other VCs think alike. If you have any suggestions for future topics, don’t hesitate to write us: firstname.lastname@example.orgTDJ Pitango Ventures team
Why is the fund’s lifecycle so important?Have you ever bought fresh bread directly from a bakery? Many of them sell to retail clients only in the early morning hours, then they close their stores to focus on distributing to other points of sale. It often happens that people queue outside a bakery before the doors open, but what happens if you get there a couple of hours after they open for business? Unfortunately, there is little chance you will be able to get your hands on fresh bread that particular day. If you do manage to get a few loaves, check them carefully, as it will be rather suspicious to find the shelves still full.The art of securing finance is all about knocking on the right doors at the right time. Basic VC functioning scripts involve a period of intense activity in the first five years of operations. In the next five years, the fund will focus on exits and support from portfolio companies. Investments do happen during this time, of course, but they involve a much greater selectivity.As a given fund grows older, a visible slowing down will follow, starting when we reach some 75% of invested capital. This is when the priority task for our team, aside from follow-ons, is fundraising and securing new resources.At this time, sending us new decks does not help your chances of securing investors. Remember that funds are keenest to secure new partnerships at the start of their lifecycle.* Fund lifecycles will be different in different companies. In the example above we present the most popular model.
No VC will ever tell you that they are out of money and raising a new fund. This is why you need to do your homework and focus on the funds which have a lot of “dry powder”. For the best fund managers such periods of “inactivity” only last a short while or don’t happen at all – this is why maintaining regular contact with the best VC’s is always a good idea.Wojciech Fedorowicz
In order to maximize the likelihood of securing funding from a VC, entrepreneurs should try and find out how much “dry powder” is left in each VC’s account. This concept refers to the amount of money left in a VC’s hands, ready to be invested in new companies joining the portfolio. Why is this important? VCs, at the beginning of their operations, have plenty of funding available. However, later in their cycle, the sums left to invest may not match the company’s requirements and needs. In short, any company seeking a significant round of finance needs to approach VCs which have enough capacity to deliver this amount.Daniel Star
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