The Top 10 Traps Emerging Managers Should Avoid in Fundraising but Rarely Do
Raising capital is extremely challenging. Only about 0.5% of businesses seeking venture funding actually obtain it, and among the 800,000 professionals in private equity and investment banking, only around 2,000 graduate to launching their own funds. I’ve witnessed these difficulties firsthand through my connections with two prominent emerging manager programs: Kauffman Fellows, where I’ve supported several managers as a venture partner, and Coolwater, from which I graduated. Together, they represent over 1,000 funds in a landscape of about 2,000. Despite their brilliance, ambition, and drive, many fund managers face common obstacles that can impede their progress.
Successfully navigating this process requires not only resilience but also a keen understanding of the competitive landscape. Managing a fund is like competing in the major leagues of finance—there are far fewer fund managers at this level than there are NFL players. This highlights the intensity of the journey, as fund managers strive to differentiate themselves and gain the support necessary for success. Having raised a fund and advised several large funds, I’ve noticed many of the same mistakes being made repeatedly.
1) Investors invest in investors:
Whether you've built an impressive company, worked as an analyst at a notable venture fund, or aim to start a fund leveraging your industry fame or fortune, these accomplishments are valuable data points. However, investors ultimately invest in other investors. They focus on key metrics like DPI—essentially how quickly you can return principal to investors, at what multiple, and how swiftly that happens. In the end, they will compare your impressive background with the substance of the returns you deliver, prioritizing performance over pedigree.
If you're entering the this field having invested less than a million of your own money, even with 10x angel returns, or hoping to gain trust from potential investors given the sea of other exceptionally competent investment professionals—many with CFAs, MBAs, or advanced degrees—you need a distinct edge. You need to present something that not only differentiates you but also convinces investors that there’s no doubt you’ll deliver a 5x return on their money, especially considering the bold request for them to wait a decade to see much of it again.
2) Insufficient outreach:
If you’re going to raise a venture fund, unless you’ve already made many dozens of people millions of dollars, you’re going to have to pitch hundreds of people. And knock their socks off. You have to because as Jesse Draper says, “It’s hard to qualify the right investor for you.”
Ms. Draper pitched “500 potential investors [and] closed 50.” You are not going to come from a more storied venture capital family, be more polished, thoughtful, or savvy of an investor than her so you better believe you’re going to have to pitch more than 500. Many more.
Even those with degrees from top universities or prestigious prep schools often struggle to secure funding, often landing at around a 5% success rate. To improve your chances, focus on building genuine connections with people. Engage in the challenging but essential work of fostering rapport, and when the moment is right, you must ask for the funding—just be sure to approach it in a way that feels authentic rather than overly transactional. You may feel like a used car salesman when pursuing investment, but at the core, you're a salesperson. It’s essential to sell yourself and your fund, even if that feels uncomfortable, which it does!
3) Burnout from unmet expectations:
Many people become excited about the prospect of raising and running a fund, envisioning a process filled with networking, reconnecting with old fraternity brothers, and meeting intriguing new individuals who will admire their brilliance. However, the reality is often more complex. The most accomplished finance professionals and the most charming yet jaded investors tend to scrutinize potential fund managers closely, seeking to determine whether they genuinely like and trust them before considering an investment. They rely on their instincts to assess someone's intelligence, insight, and depth of knowledge in their claimed area of expertise.
Even those with impressive track records must contend with skepticism; investors are keenly aware of the potential for past successes to be influenced more by the brilliance of the entrepreneurs involved than by the investors' own skills. As a result, building credibility and demonstrating true value becomes crucial. Investors want to ensure that the fund manager's success is not merely a stroke of luck, but a reflection of their own acumen and ability to identify and nurture winning opportunities.
4) Underestimating the time required:
Some people attempt to raise a fund on a part-time basis, but this endeavor is vastly different from managing an AngelList syndicate, which operates more like a newsletter where individuals can review deals and invest if they choose. Securing investments in a blind pool of capital, especially from people who may not know the fund manager well, presents a much more daunting challenge. In this scenario, the focus is on diligencing the fund manager rather than the business itself, shifting significantly more work and responsibility onto the fund manager.
If you're aiming to connect with 1,500 potential investors, getting responses from and meeting with 500 individuals—including introductory meetings, diligence discussions, and possibly final diligence meetings—requires a substantial time investment. Each of these meetings typically involves around 30 minutes of preparation, a 30-minute discussion, and another 30 minutes for follow-up emails. If these meetings are in-person, those times can easily double, underscoring the extensive effort required to build the necessary relationships and credibility for successful fundraising.
If you only take three meetings for an investment—and I’ve had to conduct as many as ten for a substantial check—that amounts to 7.5 hours just to get an investor to consider your fund. With a close rate of 5%, you’re looking at 150 hours to secure a single investor. Assuming that investor contributes a $100k check, which would generate 20% in fees plus a variable amount of carry profits, it certainly proves to be an enormously worthwhile use of your time on an hourly basis. However, recognizing that it could take over a month of meetings to land a single LP often deflates the enthusiasm of many fund managers who believe they can simply network their way to success with a few casual coffees.
5) Trying to Do it All yourself:
There have been solo GPs, like the legendary Oren Zeev, who raised $1 billion in just one year—but you're not him. It's like thinking you can outplay Tiger Woods with a few range sessions.
A common rule of thumb is that you can generally raise no more than 10 times what you can immediately secure from family and friends. While successful fundraisers like Oren can draw substantial support from their networks, those without that level of credibility need to actively network and present their skills, along with any compelling evidence they can provide.
The most effective fundraising managers excel at identifying their strengths and recognizing where their organization might be lacking. They might shine in face-to-face interactions but struggle with follow-ups via email or organizing a list of potential contacts from their LinkedIn network. It’s crucial to have a venture partner or associate manage these essential tasks, as there are only so many hours in a day, and any time not spent engaging with investors is wasted.
If you raise a $10 million venture fund, you’ll earn $2 million in fees and ideally achieve a 3x+ return, resulting in $4 million in carry rewards. If you were starting another professional services business, like accounting, and aimed to earn $6 million, would you try to do it alone? Of course not—you’d hire aggressively to ensure your operation runs smoothly and has the capacity to best service clients and deliver the best of yourself. The same principle applies to venture fund managers.
6) Failing to acknowledge a "No."
If there's no money in your venture account from an investor, they have rejected your request to invest. Ignore the various reasons they might give to avoid the discomfort of saying "no" directly. If you don’t hear the same explanation repeatedly, it likely lacks substance. It’s a “no”—so move on.
7) Not following up:
I often hear that people hesitate to email someone more than once because they don’t want to be a nuisance. However, successful individuals—especially the accredited investors who largely fund emerging managers—are typically busy building their businesses or making significant contributions to their communities. This reality allows for a structured approach: send an introductory email, follow up, and then send a final check-in to see if they might be interested. Often, the first email is read and set aside for later response, but life can get in the way, leading to missed replies.
Sending a sequence of three emails over a two-week period provides a better chance to follow up effectively. Just be mindful not to overwhelm them—avoid the tactics of political parties that bombard inboxes daily. Instead, aim for a thoughtful approach that respects their time while keeping your proposal on their radar.
8) Poor communication:
New managers often rush into initial meetings with potential investors, overwhelming them with a barrage of information. However, investors typically want to establish a personal connection first. The adage that "people don’t care what you know until they know that you care" applies here; investors are looking for someone they can see as a peer. They want to determine if you possess both deeper insights into your field and the careful judgment needed to evaluate opportunities. In these early interactions, a more restrained approach can be far more effective.
Once you’ve established rapport and have a better understanding of the investor's interests, the second meeting provides an opportunity to delve deeper into your expertise. For instance, if you spent an hour discussing various aspects of your business with a physician investor who only focuses on MedTech, you risk wasting valuable time. Even in subsequent discussions, it’s crucial to balance showcasing your knowledge with brevity. Investors may ask questions that warrant detailed responses, but they might also be seeking insights that differ from what you assume they want. Providing them with manageable amounts of information allows them to engage at their own pace, fostering a more productive dialogue.
9) Not remembering to underpromise and overdeliver:
We teach others how to treat us, both in life and in business. If we make grand promises and fail to deliver, we risk leaving people frustrated and disappointed. It's far more effective to underpromise and overdeliver, as this approach showcases maturity and prudence. By maintaining a measured tone in your dealings, you demonstrate professionalism and a thoughtful approach to investments.
While it may take more meetings to connect with investors who value substance over style, these are the partners you truly want. They will respect you and appreciate your maturity in guiding them toward their financial goals, rather than simply selling them on unrealistic dreams. Building these relationships fosters a foundation of trust and long-term success.
10) Rejection fatigue.
The toughest part about facing a 95% rejection rate from potential investors, even after identifying them as suitable for your area of expertise, is the personal nature of the rejection. They may believe they can select winning companies better than you can, or they might have someone in mind whom they consider more impressive or skilled. This experience can feel akin to the consistent disappointment an actor faces after countless casting calls, where rejection can come for any number of reasons. It’s an emotional blow, akin to enduring a relentless series of punches in a boxing ring.
You must prepare yourself for this challenging journey, recognizing that it may feel like taking hits in nine rounds with Mike Tyson. Yet, if you can withstand these setbacks, those 25 "yeses" could be transformative, leading to a fund that enables you to dedicate yourself fully to your passion. This path can offer one of the most fascinating and rewarding careers, allowing you to thrive in an exciting and profitable field.
If you’re still interested in raising a fund after all this, subscribe, and I’ll provide you with a realistic assessment of how to approach it for the best chance of success.
