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Fund Size
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What factors do you think encourage VCs to raise larger size funds?
Venture Capital
Start-ups
Fundraising
Joe Spivack
71 months ago
71 months ago
2 answers
1
As startups get cheaper to build and resources needed to grow enterprise value reduce, the risk of betting on them falls and the check sizes of rounds increase. VCs raise larger funds to write larger checks.
As VC funds become successful, they leverage their success to raise even larger subsequent funds so that they can back “hot” companies raising ever growing rounds and get larger management fees.
Osayi Igharo
71 months ago
71 months ago
OK
- Dr. David E. 63 months ago
0
VCs will typically explain this as being down to their desire to have sufficient capacity to exploit their pipeline fully and to participate meaningfully in follow-on rounds of successful investments. In reality, there are quite a few reasons:
- Management fee - typically 2% of committed capital per year - may be a factor, encouraging larger raises and extended investment periods
- Desire to do more deals
- Desire to do larger deals - or follow-on previous investments in a more meaningful way
- Desire to be more competitive on hot deals
- Appetite - from investors into their funds - it can be hard to turn that money away
- Ego - the size of a VC's fund can be read as an indication of that VC's importance (can be seen as a proxy for good returns)
Matthew Craig-Greene
71 months ago
71 months ago
Interesting
- Dr. David E. 63 months ago
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