Emerging managers shouldn’t be in a rush for an initial close even in this market

Fundraising has come in has become increasingly difficult over the past year for funds of all levels, especially emerging managers. In the first quarter of 2023, venture companies led by emerging managers raised $1.62 billion, just 13% of total capital raised in the US, according to PitchBook.

Emerging managers and new funds entering the market can be tempted in this macro environment to hold an initial close once LP capital comes in. But that may not be the best strategy in the long run.

Holding an initial close involves a lot of nuance and shouldn’t be rushed, says Kari Harris, a partner at law firm Mintz who advises VC firms on fundraising. According to Harris, holding an initial close allows a company to charge management fees and can be seen as a vote of confidence to attract institutional or larger LPs, but doing it too early can lead to avoidable problems later on.

Getting the initial close timing right is important for a number of reasons. First, that is when a company’s partnership agreement begins and a fund’s investment period begins. So a company should plan to be ready to support deals right after the initial close to get the most out of its investment period and avoid having to make changes later.

Harris’s main advice is to create a plan or schedule for the fundraising process and future closings, but to keep the timeline relatively vague when talking to potential lenders. However, she doesn’t mean you should be misleading – rather companies should make sure they don’t put themselves on timelines they can’t meet.

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