The 10X Capital Newsletter

The minimum viable data room: what investors want to see from managers pitching their funds.

Author

David Weisburd
March 05, 2024

The 10X Capital Podcast is a podcast where David Weisburd and Erik Torenberg interview the world’s top Venture Capitalists and their Limited Partners.

Today’s Agenda 📋

  • ⭐️ Today’s Spotlight: The Minimum Viable Data Room

  • 💰 VC fundraising news

  • ✍️ Top Posts of the Week

  • 🗣 What Investors Are Saying

  • 📈 Chart of the Week

  • 🔧 Emerging Manager Tools

Recent episodes 🎙

‎"The 10X Capital Podcast" with David Weisburd and Erik Torenberg | Startups, Venture Capital, and Limited Partners:

The 10X Capital in the news 🔎

This week we’re starting something new.

Today, and each subsequent week, we’re going to cover a topic that is widely acknowledged but often misunderstood in the venture industry.

The truth is, that much of how VC operates today is still opaque, and managers - especially emerging managers - have a hard time finding guidance that they can operationalize.

Our goal is to distill actionable advice that managers can use to raise venture capital in this market.

So without further ado, today’s topic: The minimum viable data room 👇

Emerging managers often want to know, “What will LPs want to see when I approach them about my fund?”

And rightfully so.

You only have one shot to make a first impression and it’s critical that your fundraising documents are prepared in order to execute an efficient fundraising strategy. LPs get pitched by new managers weekly, and if you want to compete with the many other managers in the market, it’s important to have your process buttoned up.

So what do LPs want to see in your data room (aka, your Minimum Viable Data Room)?

  • Limited Partnership Agreement (LPA)

  • Subscription documents 

  • Fundraising Deck

  • Due Diligence Questionnaire (DDQ) 

    • Not necessarily an ILPA DDQ, which is reserved for endowments, foundations, and sovereign wealth funds.

  • Portfolio Construction

All these documents are important and should be thoughtfully approached (and changed only slightly) after you’ve communicated them to your LPs

Ultimately, LPs care about two key factors: track record and references. 

In short, have you been a good investor and what do others say about you?

When it comes to track record, you need to have an attributable track record to share, a track record that you own. This could be your track record from a previous fund you’ve raised or even your track record from a previous firm. If this is your first fund, emerging managers can use their SPV track record which may include personal angel investments.

When it comes to references, LPs rely on both on-list and off-list references.  On-list references refer to references that you provide directly to LPs.  For this, the best practice is to have a third party conduct video references. Video references are a great way to record interviews once and minimize the amount of time your references are asked to jump on calls.

Nearly all large investors (institutional or otherwise) will also want off-list references which refers to references from your previous life that you did not provide.  Given that on-list references are seen as biased (given that you provided them) off-list references are key to most institutional diligence processes. 

Right now is a difficult fundraising market, it is now a buyer’s market so it is critical that you ensure that you come in fully buttoned up and that you present yourself in the most institutional way possible.

To learn more about what LPs look for, watch my Youtube channel where I interview the very top LPs every week.

VC fundraising news 💰

  • Commerce Ventures announces the closing of $150M Fund V to back founders building in retail and financial services. Source.

  • Inspired Capital announces Inspired III, a $330M fund to back founders solving the hardest challenges facing humanity. Source.

  • BFG Partners begins deploying out of its $125M third fund to back healthy and sustainable consumer businesses. Source.

  • Zacua Ventures closes $56M inaugural fund to invest in the next generation of construction technology. Source.

  • The Financial Times launches new venture arm, focusing on investing in high-growth media and tech companies. Source.

  • COTU Ventures announces $54M debut fund to support early-stage startups in the Middle East. Source.

  • Qatar Investment Authority is launching a $1B venture capital fund of funds as part of a strategy to attract international investors and startups to the GCC. Source.

Top posts of the week ✍️

What investors are saying 🗣

🎙 Omri Drory, Ph.D. and GP at NFX on taking a scientific approach to VC.

“You must be capable of being huge to even be on the radar of an early stage fund. Some things just aren’t big enough for early stage VCs. You could be the best restaurant in Palo Alto with the best chefs in the world, and you probably won’t generate enough to return our fund.

You can examine how big you are by using this formula

To A x B x C >=$100 million in revenues or >$1B in market cap at 10 times earnings

A= what you are selling

B= how much it costs

C= gross margins

As a VC we need to believe that at a bare minimum you can reach this, and potentially go much higher.”

Omri Drory, Ph.D. and GP at NFX

Chart of the week 📈

Emerging manager tools 🔧