Diary of an Emerging Manager - Part 3: F FOR FINANCE
XoXo, Venture Whisperer (The VC Gossip Girl)
Editor’s Note – Andreas Munk Holm, co-founder of eu.vc
After 400 episodes and a few fund investments, I’ve been surprised more than once by how shaky the thinking can be when it comes to investment strategy and fund modeling.
Mike Maples Jr. puts it simply: “Fund size determines strategy.” But in practice, too many managers flip this around—basing fund size on what LPs are willing to commit, rather than what the market opportunity truly demands. It’s an almost fake but classic chicken-or-egg problem. The answer should be obvious, but reality often tells a different story—in dependent of whether the fund ends up very small or bloated beyond purpose.
Our anonymous emerging manager hits another key point: the operational complexity of being a fund manager is no joke. Managing other people’s money isn’t just investing—it’s fund admin, cash flow planning, compliance, investor expectations, and so much more. It’s a heavy lift, and for many first-time GPs, a grim surprise. It’s also why so many never make it to Fund II, as we saw so clearly in the high churn of managers from when fundraising was frothy.
And those fund performance metrics? I’ll let you form your own opinion about our manager's take. Reading this piece made me think back to a quote by Fred Destin (Stride) in a past episode:
"You must be a student of venture and portfolio construction and know what a Montecarlo simulation is or whatever method you want to use to talk about portfolio diversification. You have to be a student of that stuff because if you don’t demonstrate to LPs that you’re a good money manager they won’t give you money."
Hope you'll enjoy the read.
Financial planning has been a top priority since Day 0. The moment we had a rough idea of what exactly we wanted to do, I dove straight into designing the financial structure of the fund.
Let’s face it—at the end of the day, we’re venture capitalists: we work with money, manage money, and turn invested money into even more money. (It’s like playing Monopoly, except with higher stakes and fewer boardwalks.) It is a huge opportunity and a mountain of responsibility—we have to operate with sharp diligence and the highest level of transparency.
Despite my experience in management, financial accounting, controlling, and reporting in VC, nothing prepared me for setting up my own fund.
Why? Joining a fund and setting up a fund are not the same. Let me break it down into three main points.
1. Fund Size
Fund size, my friends, is the first major hurdle. When I worked in VC it was already given, but this time I had to find out how much money we swant to manage.
But here’s the thing: if your fund is too small or too large, you’re in for a rough ride.
We faced the dilemma arising from uncertainty about how much credibility we’ll have in the eyes of various institutions and individuals. (You want a decent-sized fund, but you want it within the foreseeable future, so it cannot be too decent - otherwise, it might take ages to raise.)
The result? A fund that’s too small.
After testing the waters, the consensus was clear: LPs want a fund that allows us to deliver on our thesis while staying deeply involved with the startups, and remain excited throughout the journey - even if it takes a bit more time to raise.
So we learnt that the rumours are true: We build the fund size around the thesis, not the other way around.
2. Operational Complexities
As first-time managers, we had zero experience in calling down commitments, structuring them, and determining when the fund would actually get off the ground.
BUT we needed to plan ahead for future rounds of fundraising - including fees, fund setup costs, etc. Also, LPs coming in later must be balanced - as no one wants to feel like they’re paying more than their fair share - which is a real headache in modelling.
There are plenty of unknowns, which doesn’t make it easier at all - in fact, I spend hours with it on Excel.
And that is not all, as on the other side there are our costs - operational costs, deal expenses, and other miscellaneous items…
To determine fees, we requested quotes for many aspects, like back-office services or fund-related expenses. So now, I think we have a very detailed cost plan for fund registration and management.
Regarding the fund registration, we learnt from others’ mistakes, that choosing a a manageable jurisdiction is crucial. In light of that, we chose one which might not provide huge tax benefits or be the cheapest in terms of set-up fees, but we are related to the country, familiar with the accounting system and comfortable with the way of doing business in the country.
3. Presenting Fund Performance Metrics
This is where things get dicey. It is difficult, but we are confident in the profitability of our thesis, but also do not want to say “too big”. Plus, I am a prudent person and looking at the chaos of the last five years, I made sure we’re covered for the worst-case scenarios.
We wanted the “Wow, this is impressive!” effect but without sounding like a sci-fi plot. After all, no one likes a “too good to be true” pitch.
So in the end, we’ve intentionally based our projections on semi-good scenarios. Even our “best-case scenario” in the pitch is a semi-conservative version of what we hope to achieve.
We’re taking the “under-promise, over-deliver” approach. We’d rather leave LPs pleasantly surprised at the end of the fund’s eight-year lifecycle than have them think we sold them a fantasy. (at the end of the day we want them to invest in our next fund too ;))
So how did we do it?
Spoiler alert: not with the “helping you to build your fund” people. These high-profile consultants who charge hefty fees turned out to be better at editing pitch decks than creating actual financial plans. So thanks, but no thanks.
We also spoke to people who’ve already raised funds or are further along in the fundraising game. While we got a lot of great advice, we were surprised to find that many had very basic financial plans - so it is possible to raise with a subpar plan. Huh!
Yes - you guessed it - we learnt how to do it and did it by ourselves. BUT to be honest, I think we were very lucky as I worked with previous funds (actually on the financial management side), and could take a peek at how we should do it, therefore I had a decent idea. But if you come from Big Tech or angel investing, you might be at a disadvantage—sorry.
What is the learning?
FP is difficult. The end.
XoXo, Venture Whisperer (The VC Gossip Girl)
Upper East Side Ventures
